Feedback   New User   Login      
Tax Management India. Com TMI - Tax Management India. Com
Home Acts / Rules Notifications Circulars Tariff/ ITC HSN Forms Case Laws Manuals Short Notes Articles News Highlights
Extracts
Home List
← Previous Next →

Axis Bank Limited And DBS Bank Limited Versus Edu Smart Services Private Limited

2017 (11) TMI 705 - NATIONAL COMPANY LAW TRIBUNAL, NEW DELHI

Corporate insolvency process - whether the Axis Bank Ltd.-applicant is entitled to make a claim by invoking the corporate guarantee after the date of commencement of the insolvency process - Held that:- A claim would mean a right to payment whether reduced to any judgment etc. It also includes right to remedy for breach of contract under any law for the time being in force. The ‘Corporate Debtor’ has been defined to mean a corporate person, who owes a debt to any person and ‘creditor’ has been d .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

only when the corporate guarantee was invoked by the Axis Bank Ltd.-the Corporate Debtor-applicant on 21.07.2017. - Therefore, we are unable to persuade ourselves to accept the submissions made by the applicant-Axis Bank Ltd. - A careful perusal of Regulation 12 read with Regulation 13 would show that the Resolution Professional has to verify every claim as on the insolvency commencement date and maintain a list of creditors containing names of all such creditors alongwith the amount cl .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eding to decide the application on the aforesaid issue. - An ancillary argument is that in any case there is no provision in the Code declaring the insolvency commencement date as the date to determine the claims of the parties. A perusal of Section 22(3) of the SIC Act would reveal that it is not different in sum and substance than the provision of Section 14 of the Code. In our view, Section 14 would clearly cover the invocation of guarantee after the insolvency commencement date. There wo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. M.M. KUMAR AND MS. DEEPA KRISHAN, JJ. For The Petitioner : R.S. Randhawa, Ms. Misha and Siddhant Kant, Advs. For The Respondent : Rajeev Mehra, Sr. Adv. Sumeesh Dhawan and Ms. Vatsala Kak, Advs. JUDGMENT CHIEF JUSTICE (RETD.) M.M. KUMAR, HON'BLE PRESIDENT - This is an application filed by Axis Bank Limited under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (for brevity the Code ) with a prayer to set aside the decision of the Resolution professional dated 20.07.2017 (Annexure- .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

al Creditor, namely DBS Bank Limited filed C.P. No. (IB)-102(PB)/2017, which was admitted in the matter of Corporate Debtor under Section 7 of the Code. While admitting the petition on 27.06.2017, we have also issued direction for the moratorium in terms of Section 14 of the Code as is evident from the perusal of para 11 of that order. The Interim Resolution Professional issued public notice inviting the claims, which was duly published on 30.06.2017 (Annexure-3). The applicant submitted its pro .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nstitution of the existing loans amongst other things and working capital facilities granted to Educomp Solutions Ltd. by a consortium of lenders. Thereafter, three addendums dated 03.09.2014, 29.09.2014 and 31.03.2015 were signed inter alia, between Educomp Solutions Ltd. and the applicant-Axis Bank Ltd. In addition to the Master Restructuring Agreement dated 25.03.2014, it has also been claimed by the applicant that various rules were sanctioned to the Educomp Solutions Ltd. and later restruct .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nd unconditional corporate guarantee dated 03.06.2015 granted by the Corporate Debtor-respondent in favour of SBICAP and the lenders under the Master Restructuring Agreement and the SEB Loan Agreements. A copy of the Corporate Guarantee dated 03.06.2015 is on record (Annexure-2). 4. Axis Bank Ltd.- applicant made a claim before the Insolvency Resolution Professional. A communication was sent by the IRP vide email dated 20.07.2017 intimating that the claim cannot be verified as the corporate guar .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

a, stating that invocation of the guarantee could not be accepted on account of CIRP and the moratorium (Annexure-7). 6. The factum of invoking corporate guarantee was brought to the notice of the Insolvency Resolution professional vide email dated 21.07.2017, who responded by stating that the liability under the corporate guarantee was contingent as on the date of commencement of insolvency process on 27.06.2017, therefore, it could not be verifiable. Another objection raised by the Resolution .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nd contrary to the provisions of the Code. In that regard, reliance has been placed on Regulations 12,13 and 14 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2016 (for brevity IBBI Regulations ). Axis Bank Ltd.-applicant has also placed reliance on the definition of Financial Creditor as given in Section 5(7) to argue that it includes any person to whom financial debt is owed and also includes the person to whom the said debt ha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

onal, Axis Bank Ltd.-applicant has already claimed the amount of debt in the corporate insolvency resolution process of the principal borrower-Educomp Solutions Ltd., which has been subject matter of proceeding in C.P. No. 101(PB)/2017. According to the preliminary objection, this is a material fact which ought to have been disclosed in the application which has substantial bearing on the adjudication of the present application. It has also been suggested that Axis Bank Ltd.-applicant ought to h .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

is other Corporate Debtors, like DBS Bank, PNB, SICOM, Indus Ind Bank and Standard Chartered Bank (Now KB-assignee). The total claim of the secured creditors is about ₹ 112 crores, whereas the corporate guarantee furnished by the Corporate Debtor is of the value of ₹ 2048 crores in favour of SBI trustee. The liquidation valuation of the assets of the Corporate Debtor is about ₹ 25 crores only. Therefore, it has been submitted that the claim made by the Axis Bank Ltd.-applicant .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

, then the same would amount to unjust enrichment to such creditor and would lead to anomalous situation. It has thus been contended that once the Axis Bank Ltd.-applicant has exercised its right to file claim against the principal borrower, i.e. Educomp Solutions Ltd., it was incumbent upon it to wait for the CIRP of the principal borrower to get over before filing any claim against the guarantor. 10. It has further been stated by the Resolution professional that an un-matured claim at the time .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

017 and the claim has been rightly rejected. For the aforesaid submission, reliance has also been placed on Regulation 13 of the Regulations as the Resolution Professional has to verify only those claims which are existing as on the insolvency commencement date. The purpose of giving the cut-off date is to ensure that the assets and liabilities are frozen and a Resolution Plan is finalised on the basis of cut-off date. It is further submitted that the Resolution professional is under obligation .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s patently in violation of the moratorium imposed under Section 14 of the Code. In that regard, reliance has been placed on the provisions of Section 14(1)(c) of the Code to argue that invoking the corporate guarantee vide letter dated 21.07.2017 would amount to an action to cover the amount from the Corporate Debtor as Section 14 creates a calm period in which the rights under the contracts are suspended. It has further been pointed out that the Resolution Professional moved C.A. No. 257(PB)/20 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

filed by Axis Bank Ltd.-applicant, it has been asserted that the liability of the principal debtor and the corporate guarantor is co-extensive and reliance has been placed on Section 128 of the Indian Contract Act, 1872. The applicant has also placed reliance on the Judgments of the Hon ble Supreme Court in the case of Central Bank of India v. C.L. Vimla [2015] 7 SCC 337 and State Bank of India v. Saksaria Sugar Mills Ltd. AIR 1986 SC 868. Reliance has also been placed on various provisions of t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ssional. 16. We have heard learned Counsel for the parties at a considerable length and have perused the records with the able assistance. 17. The question which needs determination in the present proceedings is whether the Axis Bank Ltd.-applicant is entitled to make a claim by invoking the corporate guarantee after the date of commencement of the insolvency process. In order to appreciate the aforesaid issue, we may first refer to certain terms and conditions of the corporate guarantee execute .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

orthwith pay to the Security Trustee/Lenders without demur all the amounts payable by the Borrower under the Restructuring Documents . A perusal of the aforesaid clause clearly postulates that in the event of any default on the part of the Borrower, i.e. Educomp Solutions Ltd. in payment/repayment or in the event of any default to comply with or perform any of the terms, conditions and covenants in the Restructuring Documents, the Guarantor under obligation upon demand from the Security Trustee/ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

fore the last date mentioned in the public announcement. (2) A creditor, who failed to submit proof of claim within the time stipulated in the public announcement, may submit such proof to the interim resolution professional or the resolution professional, as the case may be, till the approval of a resolution plan by the committee. (3) Where the creditor in sub-regulation (2) is a financial creditor, it shall be included in the committee from the date of admission of such claim: Provided that su .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

itted and the security interest, if any, in respect of such claims, and update it. (2) The list of creditors shall be - (a) available for inspection by the persons who submitted proofs of claim; (b) available for inspection by members, partners, directors and guarantors of the corporate debtor; (c) displayed on the website, if any, of the corporate debtor; (d) filed with the Adjudicating Authority; and (e) presented at the first meeting of the committee. A co-joint reading of the aforesaid Regul .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ification has to be completed within seven days from the last date of the receipt of the claims. Thereupon, the Resolution Professional is obliged to maintain a list of creditors containing the names of creditors alongwith the amounts claimed by them. The list has to be kept available for inspection by any person who submitted proofs of claim and is required to be filed with the Adjudicating Authority/NCLT. It is also required to be presented at the first meeting of the Committee of Creditors. I .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ional would not be in a position to verify the claim as it will not be reflected in the Books of Accounts which are supposed to be updated as on 27.06.2017. In the absence of any record to verify the claim, it will be impossible for the Resolution Professional to accept any such claim which has become a debt after 27.06.2017. 19. In order to substantiate the aforesaid thesis, we may also refer to the definition of expression debt as given in Section 3(11) of the Code which has been defined in Se .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

h gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured; (8) corporate debtor means a corporate person who owes a debt to any person; (10) creditor means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree- holder; (11) debt means a liability or obligation in respect of a claim which is due from any pe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Corporate Debtor has been defined to mean a corporate person, who owes a debt to any person and creditor has been defined to whom a debt is owed and includes all types of creditors, like a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder. The emphasis appears to be on the expression payment and the debt, claim and the debt which is due from any person and includes financial debt and operational debt. Going by the aforesaid provisions, deb .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r Section 128 of the Indian Contract Act, 1872 is joint and severable. In other words, the applicant-Axis Bank Ltd, could invoke the guarantee against the principal borrower namely, Educomp Solutions Ltd. and/or against the Corporate Debtor. There can be no quarrel with the aforesaid proposition of law. However, the issue before us is whether the debt was crystallised and it was due and payable onthe date of commencement of resolution process, which is 27.06.2017. The aforesaid issue stands alre .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e cited before us. 22. We are also not impressed with the arguments based on Regulations 12 & 13 of the IBBI Regulations. The aforesaid Regulation provides that a creditor must submit proof of claim on or before the last date mentioned in the public announcement. However, those who failed to submit proof of claim have been still held entitled to do so later but before the approval of Resolution Plan by the committee, A careful perusal of Regulation 12 read with Regulation 13 would show that .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

was no intention to conceal the claim made in the CIRP initiated against the Educomp Solutions Ltd.-principal borrower would also not require any detailed consideration as we are not proceeding to decide the application on the aforesaid issue. 23. Another submission made by learned Counsel for the applicant-Axis Bank Ltd. is that Section 22(3) of the Sick Industrial Companies (Special Provisions) Act, 1985 has been deliberately omitted from the Scheme of the Code and therefore, it should be take .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

Forum
what is new what is new
  ↓     bird's eye view     ↓  


|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version