2020 (9) TMI 340 - Tri - Insolvency and Bankruptcy

Initiation of insolvency resolution of a personal guarantor of the Corporate debtors - Financial Creditor - Contest against a Personal Guarantor of the Corporate Debtors - section 97(3) of the Insolvency and Bankruptcy Code 2016 - HELD THAT - While an Application for corporate insolvency resolution process or liquidation proceedings of corporate debtors are pending before this Authority i.e. to say during the pendency of a process of corporate insolvency resolution of the Corporate Debtors an Application against the Personal Guarantor shall have to be filed. This itself indicates that the process of corporate insolvency resolution of the Corporate Debtors in an Application relating to insolvency resolution etc. of a personal guarantor needs to be filed and can be prosecuted. The law doesn t envisage that the insolvency resolution of the personal guarantor should follow only when the process of corporate insolvency resolution of the corporate debtor has come to an end. Therefore the submission that this Authority should wait till the resolution of RCOM or RITL is successfully accomplished and the debts of the corporate debtors have been satisfied would be eristic. It is to be remembered that the present forum is not a recovery forum and has nothing to do with the satisfaction or otherwise of the debts of the corporate debtors. The submissions accordingly don t hold much water. Section 97(3) of the Code doesn t provide for any alternative or any option to the Adjudicating Authority to be tardy in making the direction to the Board. The use of the word shall itself indicates the urgency with which the Application needs to be dealt with. The Authority accordingly has no other option than to issue the direction. The submissions made by the Respondents that this Authority could wait till the resolution of the Corporate debtors are completed accordingly cannot be accepted. Therefore in our considered opinion we feel it appropriate to issue the direction in terms of Section 97(3) of the Code. Rule 8 of the I B (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors) Rules 2019 provides that for the purposes inter alia of sub section (2) of section 97 the IBBI may share the database of Insolvency Professionals and share a panel of Insolvency Professionals for the purpose inter alia of subsection (4) of section 97 of the Code. The IBBI has since shared the panel (valid till 25th November 2020) under its letter dated 25th June 2020 - Therefore there is no need to direct the IBBI to nominate the name of a Resolution Professional. This Authority can appoint one from the panel. Since on filing of the Petition interim moratorium under section 96 of the Code had set in no other order in terms of prayer (b) of the Application can be passed. Application disposed off.

Summary

Issues Involved:
1. Invocation of personal guarantee.
2. Pendency of Corporate Insolvency Resolution Process (CIRP).
3. Appointment of Resolution Professional (RP).
4. Impact of foreign recovery proceedings.
5. Applicability of interim moratorium.
6. Legal implications of NPA declaration.

Detailed Analysis:

1. Invocation of Personal Guarantee:
The Financial Creditor provided credit facilities to RCOM and RITL, secured by personal guarantees from the Respondent. Defaults occurred in January 2017, leading to the accounts being declared as Non-Performing Accounts (NPA) retrospectively from 26.08.2016. The Financial Creditor invoked the personal guarantee on 31.01.2018 and issued a demand notice on 20.02.2020, which was not responded to by the Respondent. Consequently, petitions under section 95 of the Insolvency and Bankruptcy Code, 2016 were filed against the Respondent.

2. Pendency of Corporate Insolvency Resolution Process (CIRP):
The CIRP for RCOM and RITL was initiated by Ericsson India Private Limited and admitted by the Tribunal in May 2018. The Respondent argued that the personal guarantee should not be invoked until the corporate guarantees were exhausted. The Tribunal noted that the liability of a guarantor does not extinguish upon the approval of a resolution plan for the corporate debtor, citing the Hon'ble Calcutta High Court and the Supreme Court's decisions.

3. Appointment of Resolution Professional (RP):
Section 97(3) of the Code mandates the appointment of an RP within seven days of filing an application. Despite the Respondent's argument that the Tribunal should wait for the resolution of the corporate debtors, the Tribunal held that the law requires immediate action. Therefore, the Tribunal appointed Mr. Jitender Kothari as the RP.

4. Impact of Foreign Recovery Proceedings:
The Respondent had provided personal guarantees to Chinese Banks, which initiated recovery proceedings in the UK. The Tribunal noted that the interim moratorium under section 96 of the Code, which came into effect upon filing the petitions, would stay any legal action against the Respondent's assets in India by the Chinese Banks.

5. Applicability of Interim Moratorium:
The interim moratorium under section 96 of the Code restricts all legal actions against the Respondent upon filing the petitions. The Tribunal emphasized that this moratorium applies until the disposal of the company petitions, thereby protecting the Respondent's assets from enforcement actions by other creditors, including the Chinese Banks.

6. Legal Implications of NPA Declaration:
The Tribunal observed the incongruity in declaring the accounts as NPA retrospectively from 26.08.2016, even before the loan agreements were executed. However, the Tribunal noted that the Respondent did not contest this declaration and that reappraisal of the NPA declaration was beyond the scope of the Code.

Order:
The Tribunal allowed the applications in part, appointing Mr. Jitender Kothari as the RP under section 97(4) of the Code. The Tribunal refused the prayer for further interim reliefs and directed the Deputy Registrar to inform the RP of the order. No costs were awarded.