In the matter of M. Shanmugam vs. Tamilnadu Mercantile Bank Limited,

IN THE NATIONAL COMPANY LAW TRIBUNAL DIVISION BENCH (COURT– I) CHENNAI ATTENDANCE CUM ORDER SHEET OF THE HEARING HELD ON 30.08.2024 THROUGH VIDEO CONFERENCING PRESENT: HON’BLE SHRI. SANJIV JAIN, MEMBER (JUDICIAL) HON’BLE SHRI. VENKATARAMAN SUBRAMANIAM, MEMBER (TECHNICAL) IN THE MATTER OF : M Shanmugam MAIN PETITION NUMBER : CP(IB)/27(CHE)/2024 (IA/MA) APPLICATION NUMBERS IA/1400(CHE)/2024 ORDER Present: Ld. Counsel Shri. A.S. Sathish Kumar for the Petitioner. Vide separate order pronounced in Open Court, the petition under Section 94 of IBC is admitted and Shri. Madhu Desikan is appointed as the IRP. IA/1400(CHE)/2024 is disposed of.

Sd/- Sd/- (VENKATARAMAN SUBRAMANIAM) (SANJIV JAIN) MEMBER (TECHNICAL) MEMBER (JUDICIAL) MG

IN THE NATIONAL COMPANY LAW TRIBUNAL, DIVISION BENCH – I, CHENNAI CP(IB)/27(CHE)/2024 (under Section 100 of the Insolvency and Bankruptcy Code, 2016)

Mr. M Shanmugam Flat No. 108, B Block, ETA Verde, No. 6 Arcot Road, Porur Chennai – 600 116 Tamil Nadu ....Applicant/Guarantor

Versus TamilNadu Mercantile Bank Limited/ Chennai Mount Road Branch, 738, Anna Salai, Ground Floor, Khivraj Mansion, Chennai TN 600 002. ....Respondent

Along with IA/1400(CHE)/2024 in CP(IB)/27 (CHE)/2024 (Filed under Section 99(1) of the Insolvency and Bankruptcy Code, 2016) Mr. MADHU DESIKAN Interim Resolution Professional I / 4 Vijay I avmi Apartment, Balasubramanium Street Mylapore, Chennai 600 004 Email: desikan.madhu@gmail.com …Applicant CORAM : SANJIV JAIN, MEMBER (JUDICIAL) VENKATARAMAN SUBRAMANIAN, MEMBER (TECHNICAL) For Petitioner : A S Sathish Kumar, PCS For IRP : Madhu Desikan, IRP For Respondent : Aishwarya, Advocate

Order pronounced on 30th August, 2024

CP(IB)/27/(CHE)2024 & IA(IBC)/1400(CHE)/2024 M Shanmugam vs Tamilnad Mechantile Bank Limited

COMMON O R D E R (Hearing through hybrid mode)

The present petition has been filed u/s. 94(1) the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC, 2016") r/w.

Rule 6(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal

Guarantors to Corporate Debtors) Rules, 2019. The Prayer is to initiate the Insolvency Resolution Process against Mr. M Shanmugam (“Personal Guarantor”) in respect of an Amount of Rs. 8,30,59,218 together with interest. The Date of Default, as specified in Part-III of the petition, is 30.12.2023. This Petition has been filed before this Tribunal on 06.02.2024.

2. Part – I of the application sets out the details of the Applicant /

Personal Guarantor namely Mr. M Shanmugam residing at Flat

No.108, B Block, ETA Verde, No.6, Arcot Road, Porur, Chennai, 600116.

The Applicant had stood as personal guarantor in respect of the loans availed by Ommeena Pharma Distributors Private Limited. Part-III of the application sets out the details of the Creditor. The address of the Respondent is mentioned as Tamilnad Merchantile Bank Limited,

CP(IB)/27/(CHE)2024 & IA(IBC)/1400(CHE)/2024 M Shanmugam vs Tamilnad Mechantile Bank Limited

Chennai Mount Road Branch, Ground Floor, Khivraj Mansion 738,

Anna Salai, Chennai - 600002. In part – III of the application, the applicant has given the debt amount of Rs.8,30,59,218/- together with interest. Part – IV of the Application sets out the details of the Resolution Professional and the Applicant has proposed Madhu

Desikan as the Insolvency Resolution Professional in respect of the Respondent / Personal Guarantor.

Submissions by the Applicant

3. It is stated that the Corporate Debtor namely Ommeena Pharma

Distributors Private Limited had availed credit facilities on various dates from Tamilnad Merchantile Bank Limited.

4. It is stated that the Applicant, M. Shanmugam along with S.P.S Raja.

S. Ashok Kumar & S. Chandra guaranteed, the payment on demand of all moneys and discharge of all obligations and liabilities owing or incurred to the bank, the secured creditor by the borrower company.

5. It is stated that the Corporate Debtor defaulted in the payment and therefore the loan account of Corporate Debtor was classified as Non-performing Asset (NPA) as on 30.12.2023.

CP(IB)/27/(CHE)2024 & IA(IBC)/1400(CHE)/2024 M Shanmugam vs Tamilnad Mechantile Bank Limited

6. It is stated that the bank issued a demand notice to the corporate debtor as well as the guarantors on 12.01.2024 under Section 13(2) of the SARFAESI Act, 2002 directing to repay the dues to the tune of Rs.8,30,59,218.13 (Rupees Eight Crore Thirty Lakh Fifty Nine

Thousand Two Hundred and Eighteen and Paise Thirteen Only)as on 09.01.2024. (Copy of Demand Notice dated 12.01.2024 is annexed and marked as Annexure 1(i) along with the Application Typeset)

7. It is stated that the personal guarantor has filed an application before this Tribunal under Section 94(1) of the Insolvency and Bankruptcy Code, 2016, read with Rule 6(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency

Resolution Process for Personal Guarantors to Corporate Debtors) on 06.02.2024 along with the copies of documents with the prayer to initiate the insolvency process in respect of M Shanmugam, the personal guarantor to Ommeena Pharma Distributors Private Limited.

The applicant also furnished his Statement of Affairs as on 31.01.2024 (page No. 29 of the Application) to the tune of Rs.8,30,59,218.13

CP(IB)/27/(CHE)2024 & IA(IBC)/1400(CHE)/2024 M Shanmugam vs Tamilnad Mechantile Bank Limited (Rupees Eight Crore Thirty Lakh Fifty Nine Thousand Two Hundred and Eighteen and Paise Thirteen Only)

8. It is stated that the information as to the filing of the said application was intimated to the Financial Creditor by the Counsel of the applicant on the email of the financial creditor on 06.02.2024.

9. It is stated that this Tribunal Vide Order dated 26.04.2024 in CP (IB)

27(CHE)/2023 appointed Madhu Desikan, as Insolvency Resolution

Professional in this case and directed the Insolvency Resolution

Professional to collate all the facts relevant to the examination of the application for the commencement of the Insolvency Resolution

Process in respect of the personal guarantor.

Submissions by the Respondent

10. It is stated that, the applicant in the present case is the Guarantor for the M/s. Ommenna Pharma Distributors Private Limited. The applicant has mortgaged the property with the Respondent, subsequently the original borrower defaulted in the repayment therefore the loan account was classified as Non-performing Asset (NPA) as on 30.12.2023. CP(IB)/27/(CHE)2024 & IA(IBC)/1400(CHE)/2024 M Shanmugam vs Tamilnad Mechantile Bank Limited

11. It is stated that, the Respondent in the exercise of powers conferred under Section 13(12) read with rule 3 of the Security Interest (Enforcement) Rules 2002, issued a demand notice dated 12.01.2024.

(Copy of Demand notice is annexed and marked as Annexure-A of the Respondent Typeset)

12. It is stated that, the demand notice was sent to the borrower and the Guarantors to repay the amount of 8,30,59,218.13 (Rupees Eight

Crore Thirty Lakh Fifty-Nine Thousand Two Hundred and Eighteen and Paise Thirteen Only) as on 09.01.2024, within 60 days from the date of the notice. However, both the borrower and the guarantor refused to receive the demand notice. Consequently, the Respondent published the Demand notice in two prominent newspapers, namely “The New Indian Express” and “Dinamani” on 31.01.2024. (Copy of the Newspaper publication is marked and annexed as Annexure B to the Respondent Typeset)

13. It is stated that having failed to repay the entire amount, the Respondent published possession notice, in two prominent newspapers, namely The Indian Express and Dinamani on 09.04.2024,

CP(IB)/27/(CHE)2024 & IA(IBC)/1400(CHE)/2024 M Shanmugam vs Tamilnad Mechantile Bank Limited to the borrower, guarantor and the public in general that the Respondent has taken possession of the property that was mortgaged under Section 13(4) read with rule 8 of Security Interest (Enforcement)

Rules 2002. (Copy of the Newspaper Publications is marked and annexed as Annexure-C to the Respondent Typeset)

14. It is stated that, the Respondent had made the Applicant in the possession notice as Mortgagor not the guarantor and the Respondent has not invoked the personal guarantee of the Applicant. It is stated that mere designation as a mortgagor does not inherently trigger the invocation of the personal guarantee.

15. It is stated that, the Respondent has initiated proceeding under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) against the borrower even before this Application.

16. It is stated that, this Application before the Tribunal is a delaying tactics of Applicant which has been filed only with an intention to delay the recovery proceeding initiated by the Bank under SARFAESI

Act, 2002.

CP(IB)/27/(CHE)2024 & IA(IBC)/1400(CHE)/2024 M Shanmugam vs Tamilnad Mechantile Bank Limited

17. It is stated that, the Application filed by the Applicant needs to meet the requirements stipulated in Section 94(6) of the relevant regulations. According to Rule 6 of the IBBI (Application to Adjudicating Authority for Insolvency Resolution Process for Personal

Guarantors to Corporate Debtor) Rules, 2019, any application submitted under Section 94(1) should adhere to the prescribed Form A.

It is averred that, the application filed by the Personal Guarantor is not in a correct format as specified in Form A.

Report filed by IRP in IA/1400/CHE/2024

18. In accordance with the Order of this Tribunal dated 09.05.2024, the appointed IRP has filed his report in IA/1400/CHE/2024 on 13.05.2024.

19. The IRP in his Report, after due examination of the application, documents filed along with the application, and the Reply filed by the Respondent, in addition to the requirements as mandated under clauses (1), (2), (3), (4), (5), (6), (7), (8), (9) and (10) of Section 99 of the CP(IB)/27/(CHE)2024 & IA(IBC)/1400(CHE)/2024 M Shanmugam vs Tamilnad Mechantile Bank Limited

IBC, 2016, has recommended for the admission of the present application by the Personal Guarantor u/s. 94 of IBC, 2016.

FINDINGS OF THIS TRIBUNAL:

20. Heard the submissions made by the Learned Counsels for the applicant, respondent and perused the report of the IRP.

21. The Respondent contends that it has not invoked the Personal

Guarantee of the Applicant, instead filed proceeding under SARFAESI

Act, 2002 against the borrower on the mortgaged property. We are of the considered view that, this contention of Respondent does not hold good. To file an application under Section 94, there is no pre-requisite to invoke the personal guarantee by the Creditor. In this case, the Respondent herein had sent a demand notice to both Corporate Debtor along with Guarantors. Subsequently, the Applicant/Personal guarantor has filed this Application under Section 94 of IBC, 2016.

The demand notice sent by Financial Creditor to the Borrower and Guarantors is extracted here below:

CP(IB)/27/(CHE)2024 & IA(IBC)/1400(CHE)/2024 M Shanmugam vs Tamilnad Mechantile Bank Limited

CP(IB)/27/(CHE)2024 & IA(IBC)/1400(CHE)/2024 M Shanmugam vs Tamilnad Mechantile Bank Limited

CP(IB)/27/(CHE)2024 & IA(IBC)/1400(CHE)/2024 M Shanmugam vs Tamilnad Mechantile Bank Limited

23. The IRP in his report has stated that the Applicant satisfies the requirement as set out in Section 94 of IBC, 2016. He has accordingly recommended for admission of the present application.

24. Section 128 of the Indian Contract Act, 1872, provides that, when a default is committed, the Principal Borrower and Surety are jointly and severally liable to the Creditor and the Creditor has right to recover its dues from either of them or from both of them

CP(IB)/27/(CHE)2024 & IA(IBC)/1400(CHE)/2024 M Shanmugam vs Tamilnad Mechantile Bank Limited simultaneously. Section 128 of the Indian Contract Act, 1872 is reproduced hereunder:

“The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract.”

25. The applicant is the Personal Guarantor of the Corporate Debtor which availed the Loan. The Corporate Debtor / Guarantor failed to repay the Loan after the issuance of Demand Notice. The IRP has also recommended for initiation of Insolvency Resolution Process against the applicant.

26. In light of the afore-stated observations, the present Petition i.e.

CP(IB)/27/(CHE)/2024 is admitted. The Insolvency Resolution Process stands initiated against M Shanmugam a viz. the applicant herein. We hereby direct as follows;

I. Initiate Insolvency Resolution Process against the Respondent/Personal Guarantor. The moratorium in relation to all the debts is declared, from today i.e. date of admission of the application, and shall cease to have effect at the end of the period of 180 days, or this Tribunal passes order on the repayment plan under Section 114

CP(IB)/27/(CHE)2024 & IA(IBC)/1400(CHE)/2024 M Shanmugam vs Tamilnad Mechantile Bank Limited whichever is earlier as provided under Sec 101 of 1BC, 2016. During the moratorium period, a. Any pending legal action or proceeding in respect of any debt shall be deemed to have been stayed, and b. The creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt; and c. The debtor shall not transfer, alienate, encumber, or dispose of any of his assets or his legal rights or beneficial interest therein: d. The provisions of this section shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.

II. The Resolution Professional, viz. Madhu Desikan, IBBI/IPA-001/IP-P00579/2017-2018/11021, is directed to cause a public notice published on behalf of the Adjudicating Authority within 7 days of passing this Order on the website of the NCLT Chennai Bench, inviting claims from all Creditors, within 21 days of such issue The notice under Sub Section (1) of Section 102(2) shall include: - a. details of the order admitting the application;

CP(IB)/27/(CHE)2024 & IA(IBC)/1400(CHE)/2024 M Shanmugam vs Tamilnad Mechantile Bank Limited b. particulars of the resolution professional with whom the claims are to be registered; and c. the last date for submission of claims.

III. The publication of notice shall be made in two newspapers, one in English and other in Vernacular, which have wide circulation in the State where the Corporate Debtor and Personal Guarantor resides. The Resolution Professional shall furnish two spare copies of the notice to the Registry for the record.

IV. The Resolution Professional, in exercise of the powers conferred under Section 104, shall prepare a list of creditors on the basis of:

a. the information disclosed in the application filed by the debtor under Sections 94 or 95 as the case may be, and b. claims received by the Resolution Professional under Section 102 within 30 days from the date of the notice. The debtor shall prepare a repayment plan under Section 105, in consultation with the Resolution Professional, containing a proposal to the Creditors for restructuring of his debts or affairs. The repayment plan may authorize or require the Resolution Professional to:

CP(IB)/27/(CHE)2024 & IA(IBC)/1400(CHE)/2024 M Shanmugam vs Tamilnad Mechantile Bank Limited a. carry on the debtor, business or trade on his behalf or in his name: or b. realise the assets of the debtor; or c. administers or dispose of any funds of the debtor.

The repayment plan shall include the following, namely;

a. justification for preparation of such repayment plan and reasons based on which the creditors may agree upon the plan; b. provision for payment of fee to the Resolution Professional; c. such other matters as may be specified. V. The Resolution Professional shall submit the repayment plan along with his report on the plan to this Authority within a period of 21 days from the last date of submission of claims, as provided under Section 106. VI. In case the Resolution Professional recommends that a meeting of the creditors is not required to be called, he shall record the reasons thereof. If the Resolution Professional is of the opinion that a meeting of the creditors should be summoned, he shall specify the details as provided under Section 106(3) of IBC, 2016. The date of meeting should not be less than 14 days or more than 28 days from the date of submission of the Report under subsection (1) of Section 106 of IBC, 2016, for which at least 14 days’ notice to the creditors (as per the list prepared) shall be issued by all modes. Such notice must

CP(IB)/27/(CHE)2024 & IA(IBC)/1400(CHE)/2024 M Shanmugam vs Tamilnad Mechantile Bank Limited contain the details as provided under the provisions of Section 107 of IBC, 2016.

VII. The meeting of the creditors shall be conducted in accordance with Sections 108, 109, 110 & 111 of IBC, 2016. The Resolution Professional shall prepare a report of the meeting of the creditors on repayment plan with all details as provided under Section 112 of IBC, 2016 and submit the same to this Tribunal, copies of which shall be provided to the Debtor and the Creditors. It is made clear that the Resolution Professional shall perform his functions and duties in compliance with the Code of Conduct provided under Section 208 of IBC, 2016.

VIII. The Resolution Professional shall submit his periodic reports before this Tribunal, every 30 days. IX. The Applicant/ Personal Guarantor is directed to deposit INR 2,00,000/- (Indian Rupees Two lakhs) to the bank account of the Resolution Professional within one week, towards his fees. This shall be subjected to the rules and regulations under the provisions of the Insolvency and Bankruptcy Code, 2016.

X. The Registry is directed to communicate a copy of order, report and application to the concerned parties within seven working days and upload the same on the website immediately after the pronouncement of order.

CP(IB)/27/(CHE)2024 & IA(IBC)/1400(CHE)/2024 M Shanmugam vs Tamilnad Mechantile Bank Limited

27. Accordingly the report of the RP filed in IA/IBC/1400/(CHE)/2024 is taken on record. The Petition

CP/IB/27/CHE/2023 stands admitted.

-Sd- -Sd- VENKATARAMAN SUBRAMANIAM SANJIV JAIN MEMBER (TECHNICAL) MEMBER (JUDICIAL)

Kishore P

CP(IB)/27/(CHE)2024 & IA(IBC)/1400(CHE)/2024 M Shanmugam vs Tamilnad Mechantile Bank Limited