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TMI Blog2022 (3) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... 7/HDB/2018] ordered for Corporate Insolvency Resolution Process (CIRP) in respect of M/s. Transstroy India Limited (Corporate Debtor) on the basis of the application filed by the Canara Bank under Section 7 of the IBC, 2016. The applicant has commenced the CIRP process in pursuance of the said order. Later the adjudicating authority by order dated 18.09.2019 ordered for liquidation and liquidation commencement date is 18.09.2019 construed as per Section 5(17) of IBC, 2016. b) Respondent No. 1 Bank issued possession notice dated 24.02.2020 stating that it is in exercise of the powers conferred on it under Section 52(1)(b) of the Insolvency and Bankruptcy Code, 2016 and the relevant Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 [IBBI (Liquidation Process) Regulations, 2016]. c) Respondent No. 1 Bank also issued E-auction notice for selling the schedule property. Regulations 21 & 21A of IBBI (Liquidation Process) Regulations, 2016 lay down the manner in which the existence of the security interest has to be proved by the secured creditor. Regulation 21 enjoins upon the security creditor to inform the Liquidator of its decision either to relinquis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortgage in respect of the schedule property as part compliance of sanctioned terms and conditions of Bank Guarantee limits. The Memorandum of Entry dated 12.01.2018 entered into between the then Managing Director of the Corporate Debtor and the Chief Manager of the Respondent No. 1 clearly disclose that the Corporate Debtor created a security by way of mortgage by deposit of Title Deeds to secure due repayment and redemption by the Corporate Debtor to Respondent No. 1 towards the credit facilities sanctioned to Transstroy JSC EC UES JV. From the above it is clear that the Corporate Debtor only stood as Corporate Guarantor for the Bank Guarantee facilities given to Transstroy JSC EC UES JV. But not for the facilities extended to M/s. Transstroy Limited. h) The creation of equitable mortgage cannot give the status of Financial Creditor or Secured Creditor to Respondent No. 1 Bank. i) Respondent No. 1 filed O.A. No. 755 of 2019 before the Debt Recovery Tribunal II at Hyderabad. In the said Application schedule property herein is shown as schedule property there. If the Respondent No. 1 wants to realize the security interest, it has to proceed under the Provisions of S ARFAESI Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d credit facilities by way of equitable mortgage of schedule property. Hence, Respondent No. 1 is entitled to enforce its security interest in accordance with law and the Application is liable to be dismissed. 4. Respondent No. 2, the Liquidator, filed counter contending that as per Section 5(7) & 5(8) (h) of IBC, any person to whom financial debt is owned in respect of the guarantee furnished for the money borrowed, is a Financial Creditor. Respondent No. 1 granted and sanctioned the Bank Guarantee credit facility (BG facility) and in order to secure the due repayment of the BG facility, the Corporate Debtor executed Agreement of Guarantee in favour of Respondent No. 1. Respondent No. 1 submitted Form-D on 17.10.2019 within 30 days of commencement of liquidation proceedings and communicated its decision not to relinquish the security interest in respect of the said immovable property. The Liquidator further supported the contentions of Respondent No. 1 made in its counter and further stated that he verified the index of charges which clearly indicated that Respondent No. 1 is the first charge holder and that a certificate of registration of charge has been issued by the Registrar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I (Liquidation Process) Regulations, 2016 which is substituted on 06.01.2020. Section 53 (1) (a) (i) deals with the Resolution process costs and Liquidation costs paid in full, whereas, Section 53(1)(b)(i) deals with workmen's dues for the period of 24 months preceding the liquidation commencement date. Hence, it is obligatory on the part of Secured Creditor to realise the security interest under Section 52 of IBC, 2016, to deposit the above costs and workmen's dues for 24 months, preceding the liquidation commencement date, with the Liquidator. This was the position even prior to substitution of Regulation 21-A(2)(a) of IBBI (Liquidation Process) Regulations, 2016 with effect from 06.01.2020. Even before the substitution of the said Regulation, as and when the Secured Creditor proceeds to realise its security interest, it shall deposit the Liquidation costs and workmen's dues. It is not the case of Respondent No. 1 and Liquidator that the liquidation costs and workmen's dues have been deposited with the Liquidator even till today. b) In the possession notice dated 24.02.2020 there is no reference to filing of Form-D and the possession notice indicates that for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not stand complied, the Counsel for the Respondent undertook to produce Form-D and as such it was produced through Respondent No. 2 who is the Liquidator. But the Counsel for the Petitioner attacks Form-D on the ground that it was submitted on 18.10.2019 which is beyond limitation. He relies on Regulation 21-A(1) of IBBI (Liquidation Process) Regulations, 2016, the proviso of which specifies that if the Secured Creditor does not intimate its decision within 30 days from the liquidation commencement date, the assets covered under security interest shall be presumed to be part of the Liquidation Estate. As to how this period of 30 days has to be reckoned is the question around which the arguments revolved. The liquidation commencement date is 18.09.2019 according to the Counsel for the Applicant. Since, it is 30 days from the date of the commencement of the liquidation process it has to be filed by 17.10.2019. In answer to the said contention the Counsel for Respondent Nos. 1 & 2 would submit that according to Regulation 47 of IBBI (Liquidation Process) Regulations, 2016, which contains a table presenting a model timeline of the Liquidation process of a Corporate Debtor from the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough mail. Hence, it can be accepted that Form-D is filed by Respondent No. 1 within time. Section 12 of the Limitation Act does not come into play, hence, the objection raised by the Applicant's Counsel in that regard is found as not merited. II. Whether the Applicant has locus standi to file this Application. The Respondents contend that the Applicant does not have locus standi to file this application. But the said point was not reiterated in the arguments. However, the Applicant is an Ex-Director of the Corporate Debtor, hence, if the asset forms the part of the liquidation estate he would be benefited. Hence, he would have locus standi to file the application. III. Whether Regulation 21-A IBBI (Liquidation Process) Regulations, 2016 is applicable. Regulation 21-A(2) of IBBI (Liquidation Process) Regulations, 2016 requires the secured creditor to pay as much amount as is payable under Section 53(1)(a) & (b) (i) of IBC as it would have shared in case it had relinquished the security interest to the Liquidator within 90 days from the liquidation commencement date. The Counsel for the Applicant contends that even if Form-D is submitted, unless the above provision is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period of wages and not to the time of depositing. When there is no limitation specified as on the liquidation commencement date, the Respondent cannot be expected to deposit the amount specified under Section 53. Hence, it can be concluded that Section 21 -A, as it stands by the date of filing of this Application, is not applicable to Respondent No. 1. IV. Whether the joint consortium executed on 14.03.2014 has any relevance to this case. In the application the Applicant have raised certain objections pertaining to the joint consortium which is executed on 14.03.2014, contending that any specific asset to be charged exclusively or solely in favour of particular lender out of the pool of such charged assets needs approval and no objection certificate or clearance from all the other co-lenders is required. But the same is not agitated before the Tribunal and in the written arguments also the said contention is not taken up. However, it can be seen that the consortium is dated 14.03.2014 and as mentioned in the counter of Respondent No. 1 the Corporate Debtor has acquired the schedule property by way of registered sale deeds in the year 2016 as evidenced by the letter dated 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Civil Appeal Nos. 8512 - 8527 of 2019 between Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited vs. Axis Bank Limited, wherein at para No. 44, 45 & 46 it is observed as follows: "Para 44: As noticed, the root requirement for a creditor to become financial creditor for the purpose of Part II of the Code, there must be a financial debt which is owed to that person. He may be the principal creditor to whom the financial debt is owed or he may be an assignee in terms of extended meaning of this definition but, and nevertheless, the requirement of existence of a debt being owed is not forsaken. Para 45: It is also evident that what is being dealt with and described in Section 5(7) and in Section 5(8) is the transaction vis-à-vis the corporate debtor. Therefore, for a person to be designated as a financial creditor of the corporate debtor, it has to be shown that the corporate debtor owes a financial debt to such person. Understood this way, it becomes clear that a third party to whom the corporate debtor does not owe a financial debt cannot become its financial creditor for the purpose of Part II of the Code. Para 46: Expounding yet further, in our vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o this case. A reading of Sub-clause (h) of Section 5(8) would make it clear that 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 would also qualify for a financial debt. Since there is no dispute that a guarantee is given for the loan advanced by the Respondent No. 1 to M/s. Transstroy JSC EC UES JV which is a Joint Venture Company of the Corporate Debtor, it can be safely held that it satisfies a financial debt. The Liquidator has relied on a judgement of the Supreme Court which is rendered by 3 judges in Civil Appeal No. 2734 of 2020 between Laxmi Pat Surana vs. Union Bank of India & Another. The said judgement is an absolute answer to the contentions of the Applicant's Counsel and is binding, since it is a judgement subsequent to the judgement relied upon the Applicant's Counsel and is rendered by three judges. The facts of the case dealt with by the Supreme Court can briefly be stated for the purpose of better appreciation. The Respondent No. 1 Bank extended credit facility to M/s. Mahaveer Construction, a proprietary firm of the Appellant, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al creditor to initiate CIRP against a corporate debtor. Section 7 of the Code propounds the manner in which corporate insolvency resolution process (CIRP) may be initiated by the "Financial Creditor" against a "Corporate Person being the Corporate Debtor". It predicates that 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 CIRP against a corporate debtor before the Adjudicating Authority when a default is committed by it. The expression "default" is expounded in Section 3(12) to mean non-payment of debt which had become due and payable and is not paid by the debtor or the corporate debtor, as the case may be. The Corporate Person also can be a principal borrower assuming the status of Corporate Debtor having offered guarantee, if and when the principal borrower/debtor commits default in payment of its debt. The term "financial creditor" has been defined in Section 5(7) read with expression "Creditor" in Section 3(10) of the Code to mean a person to whom a financial debt is owed and includes a person to whom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may not be a corporate person, but if a corporate person extends guarantee for the loan transaction concerning a principal borrower not being a corporate person, it would still be covered within the meaning of expression "Corporate Debtor" in Section 3(8) of the Code. It was categorically held that there is no reason to limit the width of Section 7 of the Code despite law permitting initiation of CIRP against the corporate debtor, if and when default is committed by the principal borrower. The above observations of the Supreme Court would suffice to hold that CIRP can be initiated against the Corporate Debtor in respect of the loan for which he stood as guarantee. The counsel for the Applicant relies on Section 5(5A) of the Code, which defines the expression "Corporate Guarantor" and contends that the contract of guarantee should be in favour of the Corporate Debtor to invoke Section 7. But in my considered opinion, reading section 5 in such manner would defeat the spirit of the above judgement. The Supreme Court also touched upon the Section 5(5A) of the Code, but it did not lay down that the contract of guarantee should be in favour of the Corporate Debtor, It is felt necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X
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