TMI Blog2017 (7) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs against the Principal Borrower. Of course, that may not be a ground for the Bank not to proceed against the Guarantor if Guarantee is enforceable. But the intermittent actions that are being taken up by the Petitioner Bank shows that it chose to have a chance remedy under the Code by suppressing the material facts including the revocation of Guarantee Agreement dated 14.1.2008. The incomplete record placed by the Petitioner Bank amounts to misleading also. Coming to suppression of material facts, except the Petitioner's saying that proceedings before DRT are pending, it did not choose to file any papers relating to the proceedings before DRT. Petitioner totally suppressed the Suit filed by the Respondent before the High Court of Colombo. Petitioner having knowledge about revocation of Bank Guarantee, did not disclose about the same. Inspite of direction given by this Authority on 17.5.2017 to parties, Petitioner not filed documents relating to proceeding before DRT. Petitioner shall file the copies of Entries in Bankers' Book in accordance with the Bankers' Books Evidence Act. In these set of facts, and in the light of controversy on limitation aspect and in view of bona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds and reminders, M/s. Haikawa Industries (P) Limited has failed and neglected to make repayment and honour the terms and conditions of the Loan Agreement entered into between the Principal Borrower and the Bank. 8. It is the case of the Petitioner Bank that the amount is due and payable as on 31st January, 2017. It is also the case of the Petitioner that Principal Borrower, M/s. Haikawa Industries (P) Limited, Colombo has since gone into liquidation, a Provisional Liquidator was appointed on 26.4.2013. Petitioner lodged its claim before the Official Liquidator of the said Company at Colombo. Further, it is the case of the Petitioner Bank that Respondent Company executed a Guarantee Agreement on 14th January, 2008. It is the further case of the Petitioner that the liability of the Respondent Company to pay the outstanding balance with interest is co-existence with the liability of the Principal Borrower. 9. Petitioner Bank, on 13th February, 2017 got issued a legal notice to the Respondent Company demanding payment of ₹ 49,27,02,852.08 ps. as on 31.1.2017 within 10 days from the receipt of the notice failing which Petitioner Bank would initiate corporate insolvency reso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re heard. At the concluding stage of arguments, learned counsel for the Petitioner filed Written Arguments. 11. It is the case of the Petitioner Bank that the Guarantee Agreement dated 10.1.2008 is a continuing Guarantee and Respondent being a Corporate Guarantor is liable to pay the amount due from the Principal Borrower, M/s. Haikawa Industries (P) Limited. It is also the case of the Petitioner that Respondent Company has committed default in making payment of the outstanding amount due by the Principal Borrower and therefore Petitioner Bank is entitled to trigger the insolvency resolution process under Section 7 of the Code. 12. The case of the Respondent, as narrated in the Affidavit of the Managing Director of the Respondent Company is as follows; 12.1 The credit facilities availed by M/s. Haikawa Industries (P) Limited was restructured by the Petitioner Bank in terms of sanction letter dated 14th February, 2007. The credit facility was secured by way of Corporate Guarantee by the Respondent and the personal guarantee of Mr. Bhupinder Singhe Machre; Mr. Parmeet Singh Machre and Mr. Harmeet Singh Machre. The Corporate Guarantee is dated 14th January, 2008. It is stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is pending before the High Court of Western Province Holden, Colombo exercising civil jurisdiction. According to the Petitioner Bank, date of default is 10th October, 2012 and therefore Petitioner could have very well filed a petition for winding-up of Respondent under the provisions of the Companies Act, 1956. It is also the case of Respondent that alleged default which occurred in October 2012 is well beyond the period of limitation prescribed under the Limitation Act. 13. A 'Financial Creditor' is entitled to file an Application for initiating Corporate Insolvency Resolution Process against a Corporate Debtor before the Adjudicating Authority, when a default has occurred, under Section 7(1) of the Code. 14. 'Financial Creditor' is defined in sub-section (7) of Section 5 of the Code, which read as follows; Financial Creditor means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to Therefore, in order to determine whether Petitioner Bank is a 'Financial Creditor' or not, one has to look at the definition of 'financial debt', which is defined in sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a 'Financial Creditor'. 14.2 Respondent is a 'Company' registered under the Companies Act, 1956. 14.3 Sub-section (7) of Section 3 defines Corporate Person , which means a Company as defined in Clause 20 of Section 2 of Companies Act, 2013, a limited liability partnership, as defined in clause (n) of sub-section (1) of Section 2 of the Limited Liability Partnership Act, 2008 or any other person incorporated with limited liability under any law for the time being in force but shall not include any financial service provider. Therefore, Respondent Company is a Corporate Perso . 14.4 Corporate Debtor is defined in sub-section (8) of section 3, which means a corporate person who owes a debt to any person. Debt is defined in sub-section (11) of Section 3. Debt means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt. Sub-section (12) of Section 3 deals with 'default'. It says that Default means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not repaid by the debtor or the corporate debtor, as the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation do not constitute a first demand or the first refusal by the Respondent Company. Therefore, the first contention of the learned counsel appearing for the Petitioner Bank that it is the Notice dated 27.2.2017 issued by the Respondent Company to the Petitioner Bank that constitutes a refusal, do not merit acceptance. 16. The second contention is that the amount due from the Principal Borrower to the Petitioner Bank is a 'financial debt' and in respect of which Respondent Company gave Corporate Guarantee, vide Agreement dated 14th January, 2008 and therefore the liability of the Respondent squarely falls under the definition of 'financial debt' as per Section 5(8)(1) of the Code. He further contended that the Petitioner nominated the Interim Insolvency Resolution Professional and provided the letter of the IRBI. The contention of the learned counsel for the Petitioner Bank is that the money lent to the Principal Borrower is a 'financial debt'. The liability of the guarantor, if any, under the Guarantee Agreement dated 14.1.2008 certainly comes within the definition of 'financial debt' as contended by the learned counsel for the Petitioner. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Operational Creditor, demand notice is contemplated and in response to such a demand notice if the Corporate Debtor informs the Operational Creditor that there exist a dispute and a suit or arbitration proceeding which has been initiated before the receipt of the demand notice, there ends the matter. Therefore, while comparing Section 7 and 8 of the Code, it must be borne in mind that the judicial function of the Adjudicating Authority is more in the case of Petition filed under Section 7 when compared to the petitions filed under Section 8 and 9 by the Operational Creditor. When it is contended by the learned counsel for the Petitioner that no demand notice is contemplated under Section 7 of the Code, before filing a Petition triggering the Insolvency Resolution Process under Section 7, it is not known why the Petitioner Bank chose to issue a Demand Notice dated 13.2.2017 to the Respondent Company. It is the argument of the learned counsel for the Petitioner that Reply dated 27.2.2017 issued by the Respondent, to the notice dated 13.2.2017 amounts to refusal to make payment under the Guarantee dated 14.1.2008. Therefore, it is obvious that the Petitioner Bank wants to create a se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the following reliefs; a. Make a declaration that the aforesaid alleged corporate guarantee dated 14 January 2008 furnished by the Plaintiff Company to the Defendant arising out of the aforesaid commercial transactions is void ab initio and non-est; b. Make a declaration that the Plaintiff Company in any event stood discharged from the aforesaid incomplete guarantee with effect from 22nd April 2009; c. Make a declaration that the aforesaid alleged corporate guarantee dated 14 January 2008 furnished by the Plaintiff Company to the Defendant arising out the aforesaid commercial transactions stands cancelled/ determined/ discontinued and/or is unenforceable in law consequent to the aforesaid notice dated 30 March 2010; d. Make a declaration that the Defendant is not entitled to initiate any action against the Plaintiff Company in Sri Lanka and/or in any other jurisdiction with regard to the aforesaid Guarantee; e. Award the Plaintiff costs and such other and further relief as to Your Honours Court shall deem fit. 20. The pleadings in the Plaint in CHC-233/2013 are as follows; (i) The Guarantee Agreement dated 14th January, 2008 is an incomplete Guar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s passed by this Adjudicating Authority, in my considered view it may not be binding on the High Court of Colombo insofar as the proceedings in CHC 233 of 2013 are concerned. Therefore, Hon'ble High Court of Colombo can pass an order in CHC 233 of 2013 inspite of initiation of Insolvency Resolution Process and inspite of moratorium order. In case if the order of the Hon'ble High Court of Colombo is in favour of the Respondent, then a situation may arise whether the order of the High Court of Colombo would prevail or the order of this Adjudicating Authority would prevail. Therefore, in my considered view, it is not just and proper to hold that the pending proceedings in CHC/233/2013 MR before High Court of Colombo has no bearing or relevance on this Petition. 23. Learned Counsel for Petitioner contended that pendency of proceedings before DRT against Respondent Company is no bar to entertain this Petition. In support of the said contention, he relied upon the decision in The Hong Kong Shanghai Banking Corporation Limited Vs. Agnite Education Limited, Chennai reported in (2012) SCC Online Madras 2789: (2013) 176 Comp. Cases 313 . In that case, winding up petition was fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich reads as follows; (8). This guarantee shall remain in force and be binding as a continuing security against us until the expiration of one calendar month after you shall have received notice in writing from us to discontinue and determine the same. Provided however that no such notice of determination shall in a manner affect any liability incurred hereunder at any time up to the date of such determination and/or contingent liability which may have been incurred or to arise hereunder after the expiration of the said notice but in respect of any transaction whatsoever prior to the date of the expiry of such notice. Learned Counsel for the Respondent further contended that Petitioner Bank sought for a declaration from the Debt Recovery Tribunal that it is valid, subsisting and binding on the defendants. He further contended that Respondent Company also filed a Suit before the High Court of Colombo seeking a declaration that the Guarantee Agreement dated 14.1.2008 is void, ab initio. He contended that those proceedings were initiated in 2013 and they are pending. It is the contention of the learned Counsel for the Respondent Company that Petitioner without filing a windi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the provisions of the Insolvency Code before the Adjudicating Authority shall be treated as the proceeding before the National Company Law Tribunal. In that view of the matter, whether it can be said that the provisions of the Limitation Act, 1963 are applicable to the triggering of the Insolvency Resolution Process under the Code or not is a controversy which is not required to be answered in this case in a summary manner at the admission stage. 26.3 Coming to the aspect of limitation, for filing of winding up petitions under Section 433 read with Section 434 of the Companies Act, it is settled law that no period of limitation is provided for filing the winding up petition. However, in view of Section 433(e) of the Companies Act, a winding up petition is maintainable when a company is unable to pay its debt which is due and payable. In the Judgment delivered by the Division Bench of the Hon'ble Delhi High Court in Interactive Media Communication Solution (P.) Ltd. v. Go Airlines Ltd. [2013] 118 SCL 141 (Mag. ), relying upon the decision in Niyogi Offset Printing Press Ltd. v. Doctor Morepen Ltd. [2007] 76 SCL 454 Delhi it was held that no period of limitation has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licant is within time and is not barred by limitation on the ground that the refusal is there only on 27th February, 2017 is not correct and do not merit acceptance. 26.4 Coming to the limitation in respect of the continuing guarantees, learned counsel for the Petitioner brought to the notice of this Adjudicating Authority the decision, in Mrs. Margaret Lalita Samuel case (supra). The learned counsel for the Respondent on this aspect relied upon decision in Syndicate Bank v. Channaveerappa Beleri [2006] 11 SCC 506 . In the decision in Mrs. Margaret Lalita Samuel (Supra), it is held that in case of a continuing guarantee so long as the account is a live account in the sense that it is not settled and there is no refusal on the part of the guarantor to carry out the obligation, the period of limitation cannot commence running. 26.5 In the decision in Syndicate Bank (Supra), the decision in Mrs. Margaret Lalita Samuel (supra) was referred to and it is held in Para 10 as follows; 10. Samuel, no doubt, dealt with a continuing guarantee. But the continuing guarantee considered by it did not provide that the guarantor shall make payment on demand by the Bank. The continuing gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Written Arguments of the learned counsel for the Petitioner. Ascertainment of Default. 27. The most important function of this Adjudicating Authority in a Petition filed by a Financial Creditor under Section 7 of the Code is to ascertain the existence of default, and a default has occurred. Sub-section (4) of Section 7 says that the Adjudicating Authority shall ascertain the existence of default from the records of information utility or on the basis of other evidence furnished by the Financial Creditor under sub-section (3). Section 7 (5) (a) says that if the Adjudicating Authority is satisfied that a default has occurred and application is complete and there is no disciplinary proceeding pending against the proposed Interim Insolvency Resolution Professional, it may admit the application. 28. Learned Counsel appearing for the Petitioner Bank contended that the statement of account of the Principal Borrower filed along with the Petition for the period from 10th October 2012 to 14.3.2017 coupled with the notice of refusal dated 27.2.2017 is sufficient evidence to ascertain the existence of default and to satisfy that in fact a default has occurred. He also conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the defense depends. 30. In the Judgment of the Delhi High Court, there was a reference to the Judgment of the Hon'ble Madras High Court in Tube Investments of India Ltd. v. Rim and Accessories (P.) Ltd. [1993] 3 Co. LJ 322, wherein the following principles relating to bona fide disputes have been evolved; (i) if there is a dispute as regards the payment of the sum towards the principal, however small that sum may be, a petition for winding up is not maintainable and the necessary forum for determination of such a dispute existing between parties is a civil court; (ii) the existence of a dispute with regard to payment of interest cannot at all be construed as existence of a bona fide dispute relegating the parties to a civil court and in such eventuality, the Company Court itself is competent to decide such a dispute in the winding-up proceedings; and (iii) if there is no bona fide dispute with regard to the sum payable towards the principal, it is open to the creditor to resort to both the remedies of filing a civil suit as well as filing a petition for winding up of the company. 31. In the same Judgment, there is also a reference to the Judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Respondent in the Suit filed by it in the High Court of Colombo or as defence in OA No. 242/2013 before DRT, Mumbai are bona fide and substantial defences and there is likelihood of Respondent herein succeeding in those proceedings. 32.1 The Adjudicating Authority need not be carried away by the documents filed by Financial Creditor alone in all cases, but in a given case it shall consider the relevant bona fide pleas of Corporate Debtor in earlier proceedings in order to satisfy about the existence of default or occurrence of default only. 33. Learned Counsel appearing for the Respondent contended that Petitioner suppressed the material facts and material documents and approached this Adjudicating Authority to trigger the Insolvency Resolution Process which may have serious consequences on the functioning of the Company. There is any amount of force in the contention of the learned Counsel for the Respondent. The Resolution Process be it under Section 7 or Section 9 result in serious civil consequences not only on the Corporate Debtor Company but on the Directors of the Company, Shareholders of the Company, Workers of the Company, Depositors of the Company. Once the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Statement of a Principal Borrower for the period from 10.10.2012 to 14.3.2017. When the Petitioner Bank is not maintaining the account of the Guarantor separately, there is no possibility of Petitioner Bank filing such copies of accounts before this Adjudicating Authority. 36. Learned Counsel for the Petitioner lastly contended that the outstanding amount which is due by the date of revocation of guarantee has to be paid by the respondent and respondent company committed default in payment of such amount and therefore this petition has to be admitted. The said plea is not there in the notices issued by the Petitioner. Petitioner did not file any account copy of at least even the Principal Borrower from the date of revocation of the Bank Guarantee till the date of notice dated 13.2.2017 along with Petition. Here, it is pertinent to mention that in the Civil Suit filed by the Respondent in the year 2012 itself. Respondent herein took a specific plea that as on the date of the revocation of Bank Guarantee, no amount is due by the Principal Borrower to the Bank. This plea is there in the Plaint in CHC/233/2013 MR at Para No. 17. For the first time in the Written Arguments, which is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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