TMI Blog2021 (10) TMI 1086X X X X Extracts X X X X X X X X Extracts X X X X ..... taken Personal Guarantee of Mr Mahendra Singh Narang and Mrs Manjit Kaur in addition to the Corporate Guarantee given by the Corporate Debtor - on the occurrence of default, it was the sole prerogative of the Financial Creditor to initiate action against the Principal Borrower or the Personal Guarantor of the Corporate Guarantor. Since the Appellant Financial Creditor had initiated action under the Insolvency and Bankruptcy Code against the Corporate Guarantor, the Application could not have been dismissed on the erroneous assumption that the Application should have been filed against the Personal Guarantor under Section 95 of the Code. It is clear that Respondent Eastern Embroidery Collections Private Limited was the Corporate Guarantor of the Principal Borrower Eastern Overseas , and not a Personal Guarantor. Therefore, in terms of Sub-section (7) and (8) of Sec 3 of I B Code, 2016 is a Corporate Debtor. Further, the applicable Rules would be Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 . The Adjudicating Authority committed an error in holding that action should have been initiated against the Personal Guarantor of the Corporate Debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce basis, to be repaid in sixty monthly instalments of ₹ 1,89,059/each. Respondent/Corporate Guarantor signed and executed a deed of Guarantee and other relevant documents in favour of the Appellant for an amount of ₹ 34,65,000/- with 14% per annum interest, reducing balance basis to be repaid by 60 EMI's of ₹ 79,695/-. 2.4 After that, on 01.04.2015, a notice was issued recalling the loan facility sanctioned to Borrower. The notice was also issued against the Corporate Guarantor invoking the Guarantee calling upon them to repay the financial debt. 2.5 Respondent EECPL , the Corporate Guarantor/Corporate Debtor, also provided security cheques for the financial facilities provided to the Principal Borrower Eastern Overseas by Intec Capital. However, the payments were not made even after repeated requests as per the agreed repayment schedule. Moreover, the Borrower failed to regularise the loan account. Therefore, the Appellant Intec was compelled to recall the loan facilities. 2.6 The Borrower failed to maintain an adequate amount in the Bank account, which dishonoured cheques/ECS/ACH. After that, the Arbitration proceeding was also initiated, resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Resolution Process for Personal Guarantor to Corporate Debtors) Rules, 2019, made it clear, an application under section 95 shall only be filed, on failure on debtor to pay the debt within the period of 14 days of service of the demand notice, served u/s 95 (4) IBC 2016. Which means an application u/s 95 (1) IBC 2016 can only be filed after the expiry of period of 14 days from the date of service of demand notice under section 95 (4) (b) of the IBC. 22. Applying the aforesaid provisions, when we consider the Application filed by the Applicant then we noticed that the applicant/creditor has filed under section 7 of the IBC not under section 95 of IBC. Secondly, Applicant has filed the Application for initiation of CIRP not against the corporate debtor rather against the personal Guarantor. Therefore, the Applicant is required to submit an application in Form C under section 95 (4) of the IBC and that too after service of demand notice as required under section 95 (4) (a) read with rule 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtor's) Rules, 2019 and if the debt is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n who owes a debt to any person; (22) personal guarantor means an individual who is the surety in a contract of Guarantee to a corporate debtor; 6. Persons who may initiate corporate insolvency resolution process.-Where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner as provided under this Chapter. 7. Initiation of corporate insolvency resolution process by financial creditor.- (1) A financial creditor either by itself or jointly with [other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government,] may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred: [Provided that for the financial creditors, referred to in clauses (a) and (b) of sub-section (6-A) of Section 21, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall record its reasons in writing for the same.] (5) Where the Adjudicating Authority is satisfied that- (a) a default has occurred and the Application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such Application; or (b) default has not occurred or the Application under sub-section (2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such Application: Provided that the Adjudicating Authority shall, before rejecting the Application under clause (b) of sub-section (5), give a notice to the Applicant to rectify the defect in his Application within seven days of receipt of such notice from the Adjudicating Authority. (6) The corporate insolvency resolution process shall commence from the date of admission of the Application under sub-section (5). (7) The Adjudicating Authority shall communicate- (a) the order under clause (a) of sub-section (5) to the financial creditor and the corporate debtor; (b) the order under clause (b) of sub-section (5) to the financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allottee and real estate project shall have the meanings respectively assigned to them in clauses (d) and (zn) of Section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);] (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; (h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution; (i) the amount of any liability in respect of any of the Guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause; CHAPTER III INSOLVENCY RESOLUTION PROCESS 95. Application by creditor to initiate insolvency resolution process.- (1) A creditor may apply either by himself, or jointly with other creditors, or through a resolution professional to the Adjudicating Authority for initiating an insolvency resolution process under this section by submitting an application. (2) A credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsolvency resolution process means the insolvency resolution process for corporate persons under Chapter II of Part II of the Code; (c) credit information company shall have the meaning as assigned to it under the Credit Information Companies (Regulation) Act, 2005 (30 of 2005); (d) financial contract means a contract between a corporate debtor and a financial creditor setting out the terms of the financial debt, including the tenure of the debt, interest payable and date of repayment; (e) Form means a Form appended to these rules; (f) identification number means the limited liability partnership identification number or the corporate identity number, as the case may be, of the corporate person; (g) Schedule means the Schedule appended to these rules. (2) All the words and expressions used herein and not defined shall have the meanings respectively assigned to them under the Code. 4. Application by financial creditor.- (1) A financial creditor, either by itself or jointly, shall make an application for initiating the corporate insolvency resolution process against a corporate debtor under Section 7 of the Code in Form, 1, accompan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udicating Authority means- (i) for the purpose of section 60, the National Company Law Tribunal constituted under section 408 of the Companies Act, 2013 (18 of 2013); or (ii) in cases other than sub-clause (i), the Debt Recovery Tribunal established under sub-section (1A) of section 3 of the Recovery of Debts and Bankruptcy Act, 1993 (51 of 1993); (b) Code means the Insolvency and Bankruptcy Code, 2016 (31 of 2016); (c) electronic form shall have the meaning assigned to it in clause (r) of section 2 of the Information Technology Act, 2000 (21 of 2000); (d) form means a form appended to these rules; (e) guarantor means a debtor who is a personal guarantor to a corporate debtor and in respect of whom Guarantee has been invoked by the creditor and remains unpaid in full or part; (f) section means section of the Code; (g) serve means sending any communication by any means, including registered post, speed post, courier or electronic form, which is capable of producing or generating an acknowledgement of receipt of such communication: Provided that where a document cannot be served in any of the modes, it shall be affixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) For the purposes of sub-section (2) of section 97 and sub-section (5) of section 98, the Board may share the database of the insolvency professionals, including information about disciplinary proceedings against them, with the Adjudicating Authority from time to time. (2) For the purposes of sub-section (4) of section 97 and sub-section (3) of section 98, the Board may share a panel of insolvency professionals, who may be appointed as resolution professionals, with the Adjudicating Authority. 9. Copy of Application.- The Applicant shall provide a copy of the Application filed under subsection (1) of section 94 or sub-section (1) of section 95, as the case may be, if not provided earlier, to the resolution professional within three days of his appointment under sub-section (5) of section 97, and to the Board for its record. 10. Filing of Application and documents.- (1) Till such time, rules of procedure for conduct of proceedings under the Code are notified, the applications under rules 6 and 7 shall be filed and dealt with by the Adjudicating Authority in accordance with- (a) rules 20, 21, 22, 23, 24 and 26 of Part III of the National Company Law Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les defines the word guarantors i.e. guarantor means a debtor who is a personal guarantor to a corporate debtor and in respect of whom Guarantee has been invoked by the creditor and remains unpaid in full or part. 16. A bare perusal of the definition shows to file an application against the personal guarantors, two things is required to establish, (i) a person is a personal guarantor to a corporate debtor and (ii) in respect of that the creditor has invoked the Guarantee and same is remain unpaid in full or part. 17. At this juncture, we would also like to refer to Rule 7 of Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 and the sane are quoted below:- (1) A demand notice under clause (b) of sub-section (4) of section 95 shall be served on the Guarantor demanding payment of the amount of default, in Form B. (2) The Application under sub-section (1) of section 95 shall be submitted in Form C, along with a fee of two thousand rupees. (3) The creditor shall serve forthwith a copy of the Application referred to in sub-rule (2) to the Guarantor and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4) shall be such as may be specified. 20. A bare perusal of the provision shows that an application by the creditor against the personal Guarantor shall be filed under Section 95 (1) of the IBC and according to Section 95(4) IBC 2016 (i), an application under sub-section (1) shall be accompanied with details and documents relating to the debts owed by the debtor to the creditor or creditors submitting the Application for insolvency resolution process as on the date of Application, (ii) it shall only be filed on failure by the debtor to pay the debt within a period of fourteen days of the service of the notice of demand and (iii) supported with relevant evidence of such default or non-repayment of debt. 21. On co-joint reading of Section 95 of IBC with Rule 7 of Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019, made it clear, an application under Section 95 shall only be filed, on failure of debtor to pay the debt within the period of 14 days of service of the demand notice, served u/s 95(4) IBC 2016 which means an application u/s 95(1) IBC 2016 can only be filed aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uires,- (e) guarantor means a debtor who is a personal guarantor to a corporate debtor and in respect of whom Guarantee has been invoked by the creditor and remains unpaid in full or part; Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 [As amended up to GSR 583(E), dated 24-9-2020] [30 November, 2016] 7.3 The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. (2) They shall come into force from the 1st day of December, 2016. 2. Application.-These rules shall apply to matters relating to the corporate insolvency resolution process. 3. Definitions.-(1) In these Rules, unless the context otherwise requires,- (a) Code means the Insolvency and Bankruptcy Code, 2016 (31 of 2016); (b) corporate insolvency resolution process means the insolvency resolution process for corporate persons under Chapter II of Part II of the Code; 7.4 The Appellant contends that the Adjudicating Authority has curtailed the remedies available to the Appellant of making an Application for Resolution of Insolvency of the Corporate Debtor , who qualifies under the definition of Corporate Person and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below for ready reference; a) Loan Agreement/DPN/irrevocable power of attorney/declaration, indemnity. b) ECS through Punjab and Sindh Bank Account No. 00751300068765. c) Creation of exclusive charge in ROC in favour of Intake Capital Limited on the prime security offered-NA. d) Personal Guarantee and Deeds of Guarantee of Mohinder Singh Narang and Mrs Manjit Kaur in favour of Intake Capital Limited . e) Corporate Guarantee and Deeds of Guarantee with 12 months back to back and for Rest 4 Yrs quarterly SPDC in favour of Intake Capital Limited-Eastern Embroidery Collections Private Limited Excel Computerised Embroidery Private Limited providing only Corporate Guarantee and Deed of Guarantee without SPDC. 7.12 The learned Adjudicating Authority had failed to notice that the Financial Creditor had taken Personal Guarantee of Mr Mahendra Singh Narang and Mrs Manjit Kaur in addition to the Corporate Guarantee given by the Corporate Debtor. 7.13 Therefore, on the occurrence of default, it was the sole prerogative of the Financial Creditor to initiate action against the Principal Borrower or the Personal Guarantor of the Corporate Guarantor. 7.14 Since the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussion, it is clear that Respondent Eastern Embroidery Collections Private Limited was the Corporate Guarantor of the Principal Borrower Eastern Overseas , and not a Personal Guarantor. Therefore, in terms of Sub-section (7) and (8) of Sec 3 of I B Code, 2016 is a Corporate Debtor. Further, the applicable Rules would be Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 . 8.2 Therefore, we are of the considered opinion that the Adjudicating Authority committed an error in holding that action should have been initiated against the Personal Guarantor of the Corporate Debtor under Section 95 of the Code instead of proceeding against the Corporate Debtor. 8.3 In the circumstances stated above, Appeal deserves to be allowed, and the impugned order passed by the learned Adjudicating Authority is liable to be set aside. ORDER Company Appeal (AT) (Insolvency) No 428 of 2021 is allowed. No order as to costs. The impugned order dated 27 April 2021 is set aside. The case is remanded back to the learned Adjudicating Authority for deciding afresh in the light of the directions given above, preferably within two months from the date of receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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