2020 (9) TMI 263 - HC - Insolvency and Bankruptcy

Lacunae and inordinate delay in the commencement and implementation of CIRP - exclusion of 120 days of the CIRP Process from the date of commencement of the CIRP viz. 29.12.2017 and direct the continuation of the CIRP Process for a further period of 120 days - HELD THAT - In the instant case the guarantor is not directly involved in the management of the company. She is a third party. It is also observed in the instant case that the securitization notice under Section 13 (2) is dated 13.02.2019 and is not an independent notice. It is not only for the guarantors property when the appeal of the company under NCLAT was pending but for all the properties taken as collateral securities for the credit facilities to the corporate Debtor. The final order of the NCLAT is dated 25.02.2019 and this in fact marked the culmination of the proceedings under the Insolvency and Bankruptcy Code 2016 though technically speaking the CIRP was over on 24.09.2018. The outcome of the appeal in NCLAT was crucial because the petitioner / appellant had wanted further extension of time. Moreover the financial creditor State Bank of India did not proceed against the personal guarantor separately. It was only by way of the securitization notice dated 13.02.2019 issued to the Corporate Debtor with copies to all the guarantors. The prayer in the WP.No.31140 of 2019 is filed for writ of mandamus directing the Insolvency and Bankruptcy Board of India to dispose of the complaint dated 23.01.2019 submitted by the petitioner to them in Form A against the orders in NCLT in MA/498/2018 and MA/460/2018 in CP/666/IB/2017. Mr.M.L.Ganesh learned counsel appearing for the 7th respondent / State Bank of India contended that the writ petition itself has become infructuous since the 4th respondent had already considered the complaint dated 09.01.2019 (and not 23.01.2019 as mentioned in the writ petition) and the same has been closed after verification of records submitted by the IRP / RP. He would further contend that the 4th respondent had also directed the RP to follow the liquidation rules. This writ petition is also infructuous for the reason that the NCLAT on an appeal preferred by the petitioner in this writ petition had disposed of both the petitions filed by him against the orders of NCLT. Petition disposed off.

Summary

Issues:
1. CIRP Process and Declaration of Corporate Debtor as NPA
2. Dismissal of Petitions Seeking Relief from CIRP Process
3. Guarantor's Liability and Declaration of NPA
4. Moratorium under Insolvency and Bankruptcy Code, 2016
5. Personal Guarantor's Liability and Moratorium Application
6. Sale of Guarantor's Property and Challenges
7. Application of Moratorium to Guarantor
8. Disposal of Complaints and Writ Petitions

CIRP Process and Declaration of Corporate Debtor as NPA:
The case involves two writ petitioners associated with M/s.Everon Castings Pvt. Ltd., a manufacturing unit facing financial distress. The Corporate Debtor was declared insolvent, leading to the initiation of Corporate Insolvency Resolution Process (CIRP) by an operational creditor. The Managing Director of the Corporate Debtor sought reliefs from the National Company Law Tribunal (NCLT), challenging disqualification decisions and the NPA declaration by State Bank of India. However, the petitions were dismissed, and subsequent appeals were also rejected by the National Company Law Appellate Tribunal (NCLAT).

Dismissal of Petitions Seeking Relief from CIRP Process:
The Managing Director's petitions aimed to exclude delays in CIRP, reconsider resolution plans, and challenge the NPA status. Despite efforts to address lacunae in the CIRP process, the NCLT and NCLAT upheld decisions against the petitioners, leading to liquidation orders for the Corporate Debtor. The legal challenges to the NPA declaration and exclusion of delays were unsuccessful, resulting in the dismissal of the petitions.

Guarantor's Liability and Declaration of NPA:
Another petitioner, a guarantor to the loans of the Corporate Debtor, contested the NPA declaration during the CIRP, claiming it was illegal and sought to void related proceedings. The guarantor emphasized her lack of involvement in the Corporate Debtor's decisions and questioned the legality of actions taken against her property by the State Bank of India.

Moratorium under Insolvency and Bankruptcy Code, 2016:
The petitioners argued that the State Bank of India's actions, including declaring NPA during CIRP, were unlawful due to the moratorium under the Insolvency and Bankruptcy Code, 2016. They contended that such actions violated the code's principles and disrupted the resolution process, emphasizing the importance of upholding the moratorium provisions.

Personal Guarantor's Liability and Moratorium Application:
The respondent bank argued that the moratorium did not extend to personal guarantors, citing legal precedents. They maintained that the guarantor's assets were distinct from the Corporate Debtor's and that pursuing the guarantor's assets was permissible outside the insolvency proceedings, as the moratorium applied only to the Corporate Debtor's assets.

Sale of Guarantor's Property and Challenges:
The respondent bank proceeded with the sale of the guarantor's property, asserting compliance with the SARFAESI Act and DRT confirmation. The guarantor's challenges to the sale notices were questioned, highlighting the bank's actions within the legal framework and the absence of challenges to the sale process.

Application of Moratorium to Guarantor:
The court clarified that while the moratorium did not apply to personal guarantors, the guarantor's situation as a third party without direct involvement in the Corporate Debtor's management warranted consideration. The court permitted the guarantor to seek relief through appropriate channels, recognizing an alternative remedy available to address the concerns raised.

Disposal of Complaints and Writ Petitions:
The court closed one writ petition and disposed of another, considering the legal proceedings, appeals, and observations made by the NCLAT. The judgments emphasized the need for adherence to legal procedures and the pursuit of remedies within the established framework, ultimately concluding the cases without costs.