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TMI Blog2025 (2) TMI 1020X X X X Extracts X X X X X X X X Extracts X X X X ..... creditors to file application to initiate Personal Insolvency Resolution Process ('PIRP'). The security trustee is merely holding security in favour of the Financial Creditor or consortium of creditors and therefore either the trust or creditors may file application under Section 95 of the Code. The wording of Section 95(1) of the Code clearly stipulates that creditor may apply "either by himself or generally with other creditors". Therefore, the creditor i.e., Respondent No. 1 is within his right to initiate Section 95 application and does not prevent him based on alleged lack of privity of contract with the Appellant. It is settled law that a party can enforce the contract made for its benefit. The Assignment Agreement and the transfer of rights and obligations under the Facility Agreement were binding on the Corporate Debtor and accordingly, the Appellant could not seek to escape his obligations thereunder. Whether the guarantee was not invoked by proper party as Demand Notice dated 21.04.2021 was issued by PHL Fininvest Private Limited whereas the Guarantee was executed into between the Appellant and Piramal Trusteeship Services Private Limited? - HELD THAT:- The clauses of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Appellant were addressed by a fresh Board Resolution ratifying previous actions. Whether when adequate securities are already available with the Respondent No. 1 by way of first and exclusive mortgage of various properties (both immoveable and moveable) charged in favour of the Piramal Finance Limited at the time of execution of the Facility Agreement dated 20.07.2017 by Corporate Debtor (HEIL) and therefore, the Appellant as Guarantor is not liable for outstanding dues? - HELD THAT:- In terms of Section 128 of the Indian Contract Act, 1872, the liability of the surety is co-extensive with that of the principal debtor. The Supreme Court in the case of Industrial Investment Bank of India Ltd. v. Biswanath Jhunjhunwala [2009 (8) TMI 1186 - SUPREME COURT] while examining the issue of the term 'co extensive liability' has held that the liability of a surety is not in alternative to the principal borrower or Corporate Debtor and further it is not necessary for a creditor to first proceed against the principal borrower or Corporate Debtor before initiating legal proceedings against the surety. Section 5(22) of the Code defines personal guarantor as an individual who is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w Delhi, Court-III ('Adjudicating Authority'). 2. Piramal Enterprises Ltd. earlier known as PHL Fininvest Pvt. Ltd. is the Respondent No.1 herein, engaged in various financial services business. 3. Mr. Jayant Prakash who is the Resolution Professional of the Corporate Debtor is the Respondent No.2 herein. 4. It has been brought to our notice that the facility in question was initially granted by Piramal Finance Limited ("PFL") to Hema Engineering Industries Limited ("HEIL") ('Corporate Debtor') under the Facility Agreement dated 20.07.2017. The Appellant further submitted that following the order of the National Company Law Tribunal, Mumbai Bench, dated 06.04.2018, and pursuant to the scheme of amalgamation, PFL (the original lender) and Piramal Capital Limited ("PCL") were amalgamated with Piramal Housing Finance Limited ("PHFL"). Subsequently, the name of PHFL was changed to Piramal Capital & Housing Finance Limited ("PCHFL"), as reflected in the Certificate of Incorporation dated 12.06.2018. The Appellant contends that under the Assignment Agreement dated 22.03.2019, the Facility Agreement dated 20.07.2017, originally entered into between PFL and HEIL, was assigned to PHL Fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that, even otherwise, the appointment of the Respondent No.2 does not comply with the 'Insolvency Professionals to Act as Interim Professionals, Liquidators, Resolution Professionals & Bankruptcy Trustees (Recommendation) (Second) Guidelines dated 01.12.2021 ("Guidelines"). The Appellant submitted that the said Guidelines outline the procedure for preparing a panel of Insolvency Professionals to act as Interim Resolution Professionals, Liquidators, Resolution Professionals, and Bankruptcy Trustees and as per the said Guidelines the Respondent No.2 with a registered office in Allahabad was not eligible for appointment within the jurisdiction of Delhi. 10. The Appellant submitted that there was no privity of contract between the parties, as the Deed of Guarantee dated 20.07.2017 ("Guarantee Deed") was executed by the Appellant in favour of PTSPL (the Security Trustee), and not with Respondent No. 1. It is the case of the Appellant that it is a settled principle of law that a Guarantor is governed by the terms of the Guarantee. In this regard, the Appellant relies on the judgment of this Appellate Tribunal in Pooja Ramesh Singh vs. State Bank of India & Anr., Company Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement dated 20.07.2017 by HEIL.The Appellant submitted that a Guarantor is not a primary party to the agreement but is considered as an additional comfort for the lender. The Appellant further submitted that Respondent No. 1 has already filed its claim for an amount of Rs. 4,43,36,21,727/- before the Respondent No.2 in the Corporate Insolvency Resolution Process ('CIRP') initiated against HEIL vide order dated 05.04.2021, which is currently under liquidation, hence there is no need to initiate PIRP against him. 14. Concluding his arguments, the Appellant requested this Appellate Tribunal to set aside the Impugned Order and allow his appeal. 15. Per contra, the Respondent No.1 denied all averments made by the Appellant as misleading and baseless. 16. The Respondent No. 1 submitted that the debt is due and payable from HEIL ("Corporate Debtor"), and the Appellant, as the Personal Guarantor of the Corporate Debtor, has committed defaults in repaying the same. The Respondent No.1 stated that Appellant has not disputed the sanction of the credit facilities or the validity of the Personal Guarantee dated July 20, 2017 executed by him in relation to such sanction, therefore, the Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, the Respondent No. 1 had placed on record a revised Board Resolution dated 05.01.2022, in its Rejoinder, thereby ratifying all actions taken pursuant to the previous Board Resolution. The Respondent No. 1 relies on the judgment in United Bank of India v. Naresh and Ors. [(1996) 6 SCC 660] which establishes that a corporation can ratify the actions of its officers, including pleadings signed by them. 20. The Respondent No. 1 submitted that the Appellant objected to the proceedings before the Adjudicating Authority on the ground that there was no privity of contract with the Corporate Debtor and PHL Fininvest, as there had been no novation of the Facility Agreement executed in favor of Piramal Capital & Housing Finance Limited, following its merger. The Respondent No.1 stated that another objection of the Appellant was that the Facility Agreement could not be assigned to PHL Fininvest. In this regard, Respondent No. 1 submitted that the Facility Agreement explicitly provided that the 'Lender' was entitled, inter alia, to assign any rights under the agreement without the consent of the Corporate Debtor. The Respondent No.1 explained that the new lender would acquire the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of an appeal at a later stage. 24. In response to the appellant's objections about non speaking impugned order passed by the Adjudicating Authority Respondent No. 1 asserts that the Adjudicating Authority duly considered the Resolution Professional's report, evidence, and relevant facts in paragraphs 11 and 12 of the Impugned Order, thus meeting the standards of a reasoned order while adhering to the principles of natural justice. The Respondent No.1 emphasizes the Adjudicating Authority's summary jurisdiction, distinct from that of a civil court, which implies that the criteria for a reasoned order may differ and this limited scope prevents the Adjudicating Authority from interfering with the commercial wisdom of the Committee of Creditors ('CoC'). 25. The Respondent no.1 submitted that the Resolution Professional was appointed by an order dated 08.04.2022, which was not challenged by the Appellant. As such, the order has attained finality, and the Appellant is deemed to have acquiesced to this appointment. Regarding the delay in filing the report, it is submitted that the Resolution Professional filed Interlocutory Application No. 2680 of 2022 before the Adjudicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d baseless. 30. The Respondent No.2 submitted that on 21.04.2021, the Financial Creditor served a statutory demand notice under Section 95(4)(b) of the Code to the Appellant/Personal Guarantor for an outstanding debt of ₹443,26,21,727/-, encompassing principal, interest, penal interest, and un-deposited TDS. In response, the Appellant/Personal Guarantor, in a reply dated 24.05.2024, claimed to have never personally taken a loan from the Financial Creditor, asserting that the matter pertains to HEIL ("Principal Borrower") and transfer the demand notice is required to be served on HEIL demanding payment of the amount of default. 31. The Respondent No. 2 submitted that on 21.06.2021, the Financial Creditor initiated an Insolvency Resolution Process against the Appellant/Personal Guarantor by filing Application IB No. 382 (ND) of 2021 before the Adjudicating Authority under Section 95(1) of the Code, r/w Rule 7(2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019. 32. The Respondent No. 2 stated that, by order dated April 8, 2022, the Adjudicating Authority appoint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al guarantee dated July 20, 2017, from the Appellant in favor of the Security Trustee for the benefit of the Financial Creditor. 38. The Respondent No. 2 submitted that the Financial Creditor issued a demand letter on 24.10.2020, to the Principal Borrower, the Appellant/Personal Guarantor, and others, highlighting the defaults and demanding clearance of outstanding dues with interest. The Respondent No.2 stated that on 24.02.2021, a recall/demand notice was issued to the same parties, recalling the entire loan as per the Facility Agreement. This notice directed the Principal Borrower and the Guarantors, including the Appellant/Personal Guarantor, to pay the outstanding amounts as of 23.02.2021, within 7 days of receipt. The Respondent No.2 stated that despite receiving the demand letter, the Appellant/Personal Guarantor and the Principal Borrower remained in default, and no payment was made to the Financial Creditor and Respondent No.2 submitted that a record of default was submitted to the Information Utility, National E-Governance Services Limited ('NeSL'), on 14.04.2021. 39. The Respondent No. 2 submitted that in the Reply dated 02.12.2021, filed by the Appellant/Personal Guar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsonal Insolvency Resolution Process through technical objections, challenging Adjudicating Authority directions that have already been decided and for which no appeal has been filed. It is the case of the Respondent No. 2 that the gave reasonable opportunity following the principle of Natural Justice and considered the various documents including copy of the Information Utility Report evidencing record of Default; Copy of the Letter of Intent; along with Deed of Guarantee; Copy of the Letter of Invocation of Guarantee and Copy of the Statutory - Demand Notice in Form B and has come to a conclusion that Insolvency Proceedings be initiated against the Personal Guarantor. 44. The Respondent No. 2 submitted that the objections raised by the Appellant are substantially the same as those presented in response to IA No. 2680 of 2022. The Adjudicating Authority considered these submissions and ruled on them in an order dated 27.02.2024. As the Appellant did not appeal the order dated 27.02.2024, the Appellant cannot reintroduce the same issue in the present appeal, as the decision stands confirmed. Given these facts, the Adjudicating Authority did not address issues already decided and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue in the present appeal based on the facts of the present appeal. (ii) As regard, the issue of privity of contract, it has been pleaded by the appellant that the personal guarantee was between the Appellant along with other guarantors with PTSPL and the Respondent No. 1 was not signatory to personal guarantee as such the Respondent No. 1 could not have initiated application under Section 95 of the Code. (iii) We note that concept of trusteeship is to act on behalf of the creditors/ Lenders. Such trusteeship deeds are generally signed between the trust on behalf of the lenders and the personal/ corporate guarantor of the principal borrower. However, by its inherent nature and intent, the lenders or the Financial Creditors are the true beneficiaries of such deed of guarantee. (iv) We further note that Section 95 of the Code provides right to the creditors to file application to initiate Personal Insolvency Resolution Process ('PIRP'). The security trustee is merely holding security in favour of the Financial Creditor or consortium of creditors and therefore either the trust or creditors may file application under Section 95 of the Code. The wording of Section 95(1) of the Code ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , with respect to any one or all of the following provisions: (a) to the dispute resolution provisions under this agreement; (b) to incorporate the names and details of any such assignee, novatee or transferee of the Lender; (c) to the administrative procedures specified under this Agreement; and (d) such other deeds, documents and writings as may be required under the Applicable Laws to facilitate or otherwise give effect to such assignment, transfer, novation, or securitization, as the case may be." ( Emphasis Supplied ) (vii) We note that Section 5(7) of the Code which defines 'financial creditor' to mean any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to. We observe that the definition of 'Lender' under the Facility Agreement deemed to include its successors, transferees and permitted assignment of debts and the Facility Agreement imposed a restriction on the transfer of the rights and obligations by HEIL and not on lenders. We observe that clause 18.2 of the Facility Agreement stipulated that the 'Lender' was entitled inter alia to assign any rights under the Facili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the Appellant under the Code. (iv) The Appellant further challenged that the report is not infirmity of the Code especially under Section 99(1), 99(7) and 99(9) of the Code, he specifically referred to Para 11 of the Impugned order in its record. (v) We take into consideration para 11 of the Impugned Order along with other relevant paras of the Impugned Order dated 11.06.2024 which read as under:- "7. This Adjudicating Authority vide order dated 08.04.2022 initiated the interim moratorium period in terms of Section 96 of IBC and appointed Mr. Jayant Prakash (having IBBI Registration: - IBBI/IPA-001/IP-P-00597/2017-2018/11049) as the Resolution Professional and the Resolution Professional was directed to submit a report in terms of Section 99 IBC. Accordingly, the Resolution Professional has filed a report and a copy of the said report has been duly served on the Personal Guarantor by all modes. 8. The Resolution Professional vide IA-2699/2022 dated 09.05.2022 has filed its report before this Adjudicating Authority. The Recommendations of the Resolution Professional are as under : "9. In pursuance of the aforesaid, the present Report is being submitted whereby, I re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... future or contingent, joint or several, incurred as principal or surety, originally owing to them. Clause 3.1 In the event of any default on the part of the Borrower in payment/repayment of any of the monies referred to in Clause 2 above the Guarantor shall, upon demand, forthwith pay to the Lenders and/or the Trustee, without demur, all the amounts demanded by the Lenders and/or the Trustee and payable by the Borrower under the Financing Documents. Clause 4.1 INDEMNITY BY THE GUARANTOR The Guarantor shall also indemnify and keep the Lender and the Trustee indemnified against all losses, damages, costs, claims and expenses whatsoever, which the Lender and the Trustee may suffer, pay or incur by reason of or in connection with any default on the part of the Borrower and/or the Guarantor in performance of their respective obligations under the Financing Documents, including Legal Proceedings taken against the Borrower and/or the Guarantor for recovery of the moneys referred to in Clause 2 and 3 above or on account of any misrepresentation on the part of the Guarantor. (Emphasis Supplied) (vii) The terms of the Personal Guarantee clearly stipulated that 'Lender' or the ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Code, the Adjudicating Authority is required to adjudicate on the application filed by the Resolution Professional under Section 99 and pass an order either admitting or rejecting the application. (v) Thus, significate role of the investigations has bee assigned to the Resolution Professional who has to examine the various documentations and reply of the debtor like Appellant/Personal guarantor in the present case. (vi) In above background, we note that the Impugned Order clearly stipulate that the Adjudicating Authority had appointed the Respondent No. 2 as Resolution Professional and directed the Respondent No. 2 to examine the case. We further note that based on the directions of Adjudicating Authority, the Respondent No.2 finalised the report which was submitted and which was taken into consideration by the Adjudicating Authority. The objections raised by the personal guarantors were filed in the reply who stated that the application is baseless. We observe that the Adjudicating Authority have heard the submissions made by the Financial Creditor, the Resolution Professional and the personal guarantors and also perused the report of the Resolution Professional. The I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent circumstances and the Adjudicating Authority is not bound to give exhausting hearing on each and every objection raised by the Appellant in the same intensity. (xi) Therefore, the Impugned Order is found to be valid and was passed while keeping in mind the principles of natural justice and equity. (xii) The judgment of the Hon'ble Supreme Court of India passed in the matter of Dilip B Jiwrajka vs. Union of India & Ors. in [Writ Petition (Civil ) No. 1281 of 2021] does not support case of the Appellant. (xiii) Thus, we reject pleading of the Appellant on this issue. 50. Issue No. (III) Whether the appointment of Respondent No. 2 was not in accordance with provision of the Code. (i) We note that the objections of the Appellant is regarding appointment of Resolution Professional on technical issues that the Respondent No. 1 mentioned the name of Respondent No. 2 as Resolution Professional without filing AFA and post facto consent was obtained from the Resolution Professional which is against the spirit of the Code. The Appellant also stated that the appointment of the Resolution Professional is not in conformity with the 'Insolvency Professionals to act as Interim Profes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... going, the contra plea, taken on behalf of the Appellants that before passing of an order under Section 97(5) of 'IBC', the ingredients of sections 91 and 92 of 'IBC', are ought to be satisfied, is not acceded to by this 'Tribunal'. Looking at from any angle, the 'Impugned Orders' dated 23.07.2021 in I.A.(IBC) No. 346 of 2021 CP(IB) No. 02/95/HDB/2021 and I.A.(IBC) No. 347 of 2021 in CP(IB) No. 03/95/HDB/2021 for appointment of Mr. Anil Kohli as 'IRP' and directing him to file 'Report' under Section 19(9) of 'IBC' are free from any legal patent legal errors. Hence, the 'Appeals' fail." (iii) We further note that the Respondent No. 2 was appointed as the Resolution Professional by the Adjudicating Authority vide order dated 08.04.2022 which has not been challenged by the Appellant and thus attained finality. (iv) In view of above, we do not find any merit in the contention of the Appellant on this issue. 51. Issue No. (IV) Whether there was no valid Board Resolution to show that the Respondent No. 1 is authorised to file its Application u/s 95 of the Code. (i) The Appellant objected to the validity of the board resolution dated April 12, 2021, filed in favour of the authorize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) We noted the pleading of the Appellant that adequate securities were already available with the Respondent No. 1 by way of first and exclusive mortgage of various properties (both immoveable and moveable) charged in favour of the Piramal Finance Limited at the time of execution of the Facility Agreement dated 20.07.2017 by HEIL/Corporate Debtor. It is the case of the Appellant that a Guarantor is not a primary party to the agreement but is considered as additional comfort for a lender. (ii) We note that the Appellant case is that adequate securities are available to the Respondent to recover the outstanding debt from the principal borrower and therefore no case was required to be initiated against the Appellant/personal guarantor. In this regard in terms of catena of judgments of the Hon'ble Supreme Court of India including the matter of Laxmi Pat Surana vs Union of India [(2021) 8 SCC 481],it has been clearly stipulated that this is the prerogative of the creditor to initiate the insolvency process against the principal borrower or the personal guarantor or both. (iii) In terms of Section 128 of the Indian Contract Act, 1872, the liability of the surety is co-extensive w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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