In the matter of UCO Bank vs. Akhilesh Pandey,

An applicationunder Section 95(1) oftheInsolvency andBankruptcy Code, 2016,readwith [Rule 7(2) of theInsolvency andBankruptcy (Application toAdjudicating Authorityfor Insolvency ResolutionProcess forPersonal GuarantorstoCorporateDebtors)Rules, 2019]

Inthematter of: UCOBank …FINANCIAL CREDITOR Versus Mr. Akhilesh Pandey …DEFENDANT/PERSONAL GUARANTOR

Versus Mr. Naresh Agarwal …RESOLUTION PROFESSIONAL/APPLICANT DateofPronouncement of Order: 04.011.2024

Appearances (via video conferencing/physically): Mr. Santosh Kr. Ray, Adv. ]For theFinancial Creditor Ms.Rituparna Sanyal, Adv. ] Ms.Zeba Khan, Adv. ] Ms.Muskan Saha, Adv. ] Ms.Manju Bhuteria ]For thePersonal Guarantor Ms.Shreya Choudhary, Adv. ] OR DE R Per:BidishaBanerjee, Member(Judicial) 1. TheCourt Convened in a hybrid mode.

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2. This CP (IB) No. 163/KB/2021 has been preferred by the Financial Creditor to seek initiation of Insolvency Regulation Process against the Respondent Personal Guarantor to Corporate Debtor Rule, 2019 (“Personal Guarantors Rules’) and regulation 4(2) of IBBI (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Regulations, 2019(‘Personal Guarantors Regulations’).

3. Theamount indefault isRs.152,15,92,468.42.

4. The Punjab National Bank filed an application under Section 7 of the IBC, 2016 against M/s Divine Alloys & Power Co Limited and the same was admitted by this Adjudicating Authority on 07.03.2019. Thereafter the Financial Creditor had issued a notice dated 12.07.20191 upon the borrowers and guarantors requesting them to pay the outstanding dues. The same was replied by the Personal Guarantor herein videletterdated 29.07.2019.

5. Thereafter the Financial Creditor had filed an application under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993 before the Learned DRT-I, Kolkata and numbered as O.A. No. 399of2019.

6. Subsequently, the Financial Creditor issued a demand notice dated 06.04.20212 under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process of Personal Guarantors to Corporate Debtor) Rules 2019. The Personal Guarantor failed to pay the outstanding dues and hence thepresent application came to befiled bytheCreditor.

7. The application is complete as required under Section 95 read with rule 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency ResolutionProcess forPersonal Guarantors to Corporate Debtor)Rules, 2019.

1Annexure-KoftheApplication 2Annexure-LoftheApplication

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8. It is to be noted that Hon’ble Supreme Court in the judgment of Dilip B. Jiwrajka V/s Union of India & Ors. In WP (civil) No. 1281 of 2021 dated 09.11.2023 has upheld the Constitutional Validity of the Sections 94 to 100 and the propositions that can beculled out from theJudgments inter-aliaare as follows: i. No judicial adjudication is involved at the stages envisaged in Sections 95 to Section 99of theIBC; ii. The Resolution Professional appointed under Section 97 serves a facilitative role of collating all the facts relevant to the examination of the application for the commencement of the insolvency resolution process which has been preferred under Section 94 or Section 95. The report to be submitted to the adjudicatory authority is recommendatory in nature on whether to accept or reject the application; iii. No adjudicatory function of Adjudicating Authority is contemplated at the admission stage. To read in such a requirement at that stage would be to rewritethestatuewhich isimpermissiblein theexercise of judicialreview; iv. The resolution professional may exercise the powers vested under Section 99(4) of the IBC for the purpose of examining the application for insolvency resolution andCP/IB/337/AHM/2020 12of 17to seek information onmatters relevant to the application in order to facilitate the submission of the report recommending theacceptance or rejection of theapplication; v. There is no violation of natural justice under Section 95 to Section 100 of the IBC as the debtor is not deprived of an opportunity to participate in the process of theexamination ofthe applicationby theresolutionprofessional; vi. No judicialdetermination takes place untilthe adjudicating authoritydecides under Section 100 whether to accept or reject the application. The report of the resolution professional is only recommendatory in nature and hence does not bind the adjudicatory authority when it exercises its jurisdiction under Section 100;

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I.A.(I.B.C)1176/KB/2022 In CompanyPetition(IB)No.163of2021 vii. The adjudicatory authority must observe the principles of natural justice when it exercises jurisdiction under Section 100 to determine whether to accept or reject the application;CP/IB/337/AHM/2020 13of 17 viii. The purpose of the interim moratorium under Section 96 is to protect the debtor fromfurtherlegal proceedings; and ix. The provisions of Section 95 to Section 100 of the IBC are not unconstitutional as they do not violate Article 14 and Article 21 of the Constitution.

9. The Applicant had proposed the name of the Mr. Naresh Agarwal, Insolvency Professional for appointment as Resolution Professional. In view of the above, Mr. Naresh Agarwal, Insolvency Professional, IBBI Registration No. IBBI/IPA-001/IP- P01155/2018-19/12168, email ID ca.nareshagarwal@gmail.com, was appointed as ResolutionProfessional.

10.The Resolution Professional was directed to file declaration within seven days to the effect that he fulfils all the requirements for being appointed as Resolution Professional in the matter which he has given, and to file his report in terms of Section 99intwo weeks. 11.The Resolution Professional Mr. Naresh Agarwal has vide his report dated 11.11.2021referred to thefollowing:

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I.A.(I.B.C)1176/KB/2022 In CompanyPetition(IB)No.163of2021

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I.A.(I.B.C)1176/KB/2022 In CompanyPetition(IB)No.163of2021

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I.A.(I.B.C)1176/KB/2022 In CompanyPetition(IB)No.163of2021

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12.The Personal Guarantor by way of his reply has refuted/ contradicted the statements oftheRPin thefollowing manner:

i. The application filed by the applicant is not maintainable and liable to be dismissed. It was on 06.11.2021 when the Personal Guarantor received an email from one Naresh Agarwal and got informed that the Corporate Debtor went into CIRP but no copy of the application was served to him in fact they had served the copy at the corporate office of the Corporate Debtor in place of the Personal Guarantor.

ii. Later on, the Personal Guarantor had appointed an Advocate who requested the Advocate on record of the Financial Creditor to provide a copy of the application to the Personal Guarantor. Thereafter a copy was served by mail but no proof of service was provided and it is for this reason that no representation could be made on 15.09.2021. He also stated that notice of demand which is mandatory prior to filingtheapplication was also not served uponhim.

iii. The guarantee which was given by the Personal Guarantor was a conditional guarantee. A CDR package was approved in the Corporate Debtor in Liquidation and a master restructuring agreement was entered into between the Corporate

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Debtor and the Financial Creditor. In terms of the approved CDR package, additional financial assistance was to be extended by the Financial Creditor to the Corporate Debtor as also the consortium of banks was to provide Rs. 18 crores towards Fresh Term Loan. The Financial Creditor in terms of the approved CDR was required to provide its share of Rs. 3.94 crore, however, the Financial Creditorfailed toprovidethe same.

iv. In para 3(ix) of the Reply Affidavit, it is stated that clause (E) of the guarantee agreement provides that "The Guarantor, in consideration of CDR Cell having approved the "Approved CDR Package" in respect of the Financial Assistance/debts granted to / of the Borrower and the Lenders having agreed to grant / granted certain reliefs and concessions to the Borrower and having restructured / agreed to restructure the Financial Assistance / debts as mentioned in Schedule II hereto, pursuant to the Approved CDR Package, have agreed to give the guarantee in the manner hereinafter expressed." The above clause clearly stipulates that the guarantor provided the guarantee in consideration of lenders having agreed to grant reliefs and restructure the debts, however, the CDR failed and the guarantee does not exist and is invalid and therefore no proceedings can be filed on the basis ofthesaid guarantee.

v. Further, heplaced reliance onthe minutes oftheJoint Lenders' Forum ("JLF") meeting held on 6th October, 20153 which would make it evident that the Financial Creditor did not release the term loan which it was required to do under the approved CDR package and the Financial Creditor was requested to release the enhanced portion of Working Capital Limit. It would appear form the said minutes that the lenders unanimously decided that the Financial 3AnnexureCoftheapplication

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Creditor herein will ensure that the Term Loan is released tentatively by 31st October, 2015. The said minutes also recorded that "undue delay by any lender will not only affect implementation of CDR package but also the stake of all the lenders." It was unanimously decided that the Financial Creditor will ensure that the Working Capital Limit is released immediately. UCO bank was not represented in the said meeting. It is recorded in the said minutes that the copy of the said minutes should be sent to UCO bank for implementationof thepackageas decided inthe said meeting.

vi. A letter dated 19.01.2015 was issued by CDR cell to Punjab National Bank which recorded that the company will not be able to meet the viability ratios without the funding and the funds were to be disbursed by way of additional term loans by the Financial Creditors. An inter se agreement dated 30.04.2015 recorded that – “By consent of all parties Punjab National Bank is designated and recognized as the lead Bank of the Punjab National Bank consortium” In accordance with the said agreement each bank was to consult and act in accordance with the directions given by the Lead Bank but inspite of repeated reminders by the lead bank to disburse the amount, the Financial Creditordid not abidebyits directions.

vii. The CDR Cell issued a letter dated 31st March, 2016 intimating the decision taken by CDREG. By the said letter the Bank of India and the UCO Bank was directed to release Working Capital Limits and Fresh Term Loan Limits as approved under CDR. The Corporate Debtor in liquidation informed the CDR Cell that the Financial Creditor has not complied with the approved CDR package. The Corporate Debtor vide a letter dated 27th December, 2016 informed that the Financial Creditor has not complied with the approved CDR package but inspite of the decision taken in JLF meeting, the Financial Creditor did not act in terms of the approved CDR Package, reason whereof the CDR Package failed and pursuant to the same the Corporate

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Debtor and the directors of the Corporate Debtor including the Personal Guarantor filed a suit being Title Suit. No. 368 of 2018 against the Lenders wherein UCO Bank is defendant no. 2 inter alia praying for following reliefs:- a. For a decree for realization of the sum of Rs.1150.30 crores from each of the defendants and theirconsortium as per schedule oftheclaim. b. A Decree for interest pendent lite after ascertainment of the amount as prayed intheschedule hereunder written; c. A Decree for mandatory injunction directing the defendants and their officers to perform, discharge, fulfill and comply with their obligation towards the scheduleof theclaim; d. Injunction e. Receiver f. Attachment before judgment g. Ad interim orders h. Costsofsuit viii.The said suit is still pending as such steps for initiating Insolvency Process and hence thepresent application is notmaintainable and liableto be dismissed. ix. The application is not maintainable as the person who has filed the said application has no authority to file the application and the Power of Attorney attached to theapplication isundated.

Rejoinderby theFinancial Creditor 13. In the rejoinder, the Financial Creditor has stated that the copy of Reply Affidavit was received on 15.12.2021 and have refuted all the contentions of the Personal Guarantor.

14. It has also been asserted that the copy of application as also the demand notice was served on the Personal Guarantor on the last-named address. It has been further

IN THE NATIONAL COMPANY LAW TRIBUNAL KOLKATA BENCH- I KOLKATA

I.A.(I.B.C)1176/KB/2022 In CompanyPetition(IB)No.163of2021 contended by the Bank that the change in address, if any, was never intimated to the banks and anyhow since Reply Affidavit has been filed by the Personal Guarantor, this objection isnot sustainable.

15. Other contentions raised by the Personal Guarantor have been summarily denied & disputed by the Financial Creditor. We find that contention of lack of authorisation to file the petition to be of technical nature and the same is not fatal to the CP. However, in regard to the other principal defence advanced by the Personal Guarantor i.e. on the reasons of default, we would like to rely on the judgment of Hon’ble NCLAT in the matter of NS Engineering on the aspect of the cause of default. The PG in its reply has relied heavily The Hon’ble NCLAT, Principal Bench, New Delhi in the matter of State Bank of India vs. N.S. Engineering Projects Pvt. Ltd.4has held:

“24. Under the Scheme of IBC, when a Corporate Debtor is unable to pay its debt, which becomes payable, it is a warning signal for Corporate Debtor and when an Application is filed by a Financial Creditor to initiate CIRP under Section 7 and there are ample material that Corporate Debtor is unable to pay its debt and has committed default, the Adjudicating Authority is not required to go into the reasons of default and ignore the real status of the Corporate Debtor and close its eyes to the fact that the Corporate Debtor needs insolvency resolution. Red signal having been flagged by the Applicant, ignoring the precarious financial situation and status of the Corporate Debtor and not taking remedial action to bring back the Corporate Debtor on its track by adopting resolution process as per IBC and reject the Application on the reasons of default, is clearly contrary to the whole Scheme of the IBC. There being sufficient material before the Adjudicating Authority that consistent defaults have been committed by the Corporate Debtor and it is unable to pay its debt, rejection of Section 7 Application on the ground that for default committed by the Corporate Debtor, the Financial Creditors have also to be blamed is closing the eyes to the Scheme of theinsolvency resolution.” 4(2023)ibclaw.in79NCLAT

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16. In regard to the plea of limitation taken, we find that the JLF meetings with the Personal Guarantor and Promoters continued till September 2017, the account with the Applicant bank became NPA on 31st March, 2016. In Pooja Ramesh Singh Hon’bleNCLAT has held as under: “24. The scheme of I&B Code clearly indicate that both the Principal Borrower and the Guarantor become liable to pay the amount when the default is committed by the Principal Borrower the amount becomes due not only against the Principal Borrower but also against the Corporate Guarantor, which is the scheme of the I&B Code. When we read with as is delineated by Section 3(11) of the Code, debt becomes due both on Principal Borrower and the Guarantor, as noted above. The definition of default under Section 3(12) in addition to expression ‘due’ occurring in Section 3(11) uses two additional expression i.e. “payable” and “is not paid by the debtor or corporate debtor”. The expression ‘is not paid by the debtor’ has to be given some meaning. As laid down by the Hon’ble Supreme Court in “Syndicate Bank vs. Channaveerappa Beleri & Ors.” (supra), a guarantor’s liability depends on terms of his contract. There can be default by the Principal Borrower and the Guarantor on the same date or date of default for both may be different depending on the terms of contract of guarantee. It is well-settled that the loan agreement with the Principal Borrower and the Bank as well as Deed of Guarantee between the Bank and the Guarantor are two different transactions and the Guarantor’s liability has tobe read fromtheDeed of Guarantee.”

Form B under Rule7(1) was issued on06.04.2021, whereafter the Financial Creditor invoked contract of guarantee by serving demand notice on Personal Guarantor. In IN THE NATIONAL COMPANY LAW TRIBUNAL KOLKATA BENCH- I KOLKATA

I.A.(I.B.C)1176/KB/2022 In CompanyPetition(IB)No.163of2021 view of Pooja Ramesh Singh (Supra), wherein it has been held that the date of default can be different for the Corporate Debtor and the PG, therefore in this case, the liability of a Personal Guarantor would be taken to be effective from the service of notice Form B under Rule 7(1) of IB Guarantor to Corporate Debtor Rules, 2019, itis seen that thePetition being filed on22.04.2021is within limitation period.

17. We have heard the Ld. Counsel appearing on both the sides and perused the pleadings and gone through theReport of theResolution Professional.

18. The PetitionC.P. (IB)/163 (KB)2021 filed bythe financial Creditor for initiating IRP against the Personal guarantor is admitted under Section 100 of IBC 2016 with following directions (1) The RP shall conduct the Insolvency Process for the Personal Guarantor as per the provisions of Chapter III of IBC 2016. [Section 100-120] read with IBBI (Insolvency resolution process for Personal Guarantors to Corporate Debtors) Regulations, 2019. Some of the important provisions are extracted hereunder: (1) MoratoriumInterms of Section 101: (2) When the application is admitted under section 100, a moratorium shall commence in relation to all the debts andshall cease to have effect at the end of the period of one hundred and eighty days beginning with the date of admission of the application or on the date the Adjudicating Authority passes anorder ontherepayment plan under section 114,whichever isearlier. (3) Duringthe moratoriumperiod— (a)any pendinglegal action or proceeding in respect of anydebt shall be deemed tohave been stayed; (b)the creditors shallnot initiateany legal action orlegal proceedings in respect ofany debt;and IN THE NATIONAL COMPANY LAW TRIBUNAL KOLKATA BENCH- I KOLKATA

I.A.(I.B.C)1176/KB/2022 In CompanyPetition(IB)No.163of2021 (c) thedebtor shallnot transfer, alienate, encumber ordisposeof anyof his assets orhis legal rightsor beneficial interest therein; (4) Where anorder admittingtheapplication under section 96has beenmade in relationto afirm, themoratoriumunder sub-section (1) shall operate againstall thepartners of thefirm. (5) Theprovisions ofthis section shall notapplyto such transactions as maybe notifiedby theCentralGovernment in consultationwithanyfinancial sector regulator. 102.Publicnoticeand claims fromcreditors: (1) The Adjudicating Authority shall issue a public notice within seven days of passing the order under section 100 inviting claims from all creditors withintwenty-one days of suchissue. (2)Thenotice under sub-section (1) shallinclude— (a)details of theorder admitting theapplication; (b)particulars of theresolutionprofessional withwhomtheclaims are tobe registered; and (c) thelastdate forsubmission of claims. (3)Thenotice shallbe— (a)published inat least oneEnglish andonevernacular newspaper which is incirculation in thestatewhere thedebtor resides (b)affixed in thepremises of theAdjudicatingAuthority; and (c) placed onthe websiteofthe AdjudicatingAuthority. 103.Registering ofclaims by creditors: (1)Thecreditors shall register claims withthe resolutionprofessional by sending detailsof theclaims bywayof electronic communications or through courier, speed post orregistered letter.

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I.A.(I.B.C)1176/KB/2022 In CompanyPetition(IB)No.163of2021 (2)In addition to theclaims referred to insub-section (1), thecreditor shall providetotheresolution professional,personal informationandsuch particularsas may beprescribed. 104. Preparationof listof creditors: (1)Theresolution professionalshall preparealist ofcreditors onthebasis of— (a) the information disclosed in the application filed by the debtor under section 94 or 95,as thecase may be; (b)claims received bytheresolution professionalunder section 102. (2)Theresolution professionalshall preparethe listmentioned in sub-section (1) withinthirtydays fromthedateof thenotice. 105.Repayment Plan (1)Thedebtor shall prepare, inconsultationwith theresolutionprofessional, a repayment plan containingaproposal to thecreditors for restructuringof his debts or affairs. (2)Therepayment plan may authoriseor requiretheresolution professionalto— (a)carry onthedebtor's businessor tradeonhis behalf or in hisname; or (b) realisetheassets of thedebtor;or (c) administer or disposeof anyfunds of the debtor. (3)Therepayment plan shall includethefollowing, namely:— (a)justification for preparation ofsuch repayment plan andreasons onthebasis ofwhich the creditors mayagree upontheplan; (b)provision for payment offee to theresolution professional; (c) such other matters as may bespecified.

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19.The RP appointed in the matter is directed to issue a public notice as envisaged in Section 102, on behalf of the Adjudicating Authority and invite claims from creditors, list of creditors etc and hold regular meeting and conduct the entire IR process as per Chapter-III of IBC 2016read with theIBBI regulations cited above.

20.The Financial creditor shall deposit Rs 1,00,000/- {Rupees One Lac} with the RP for meeting all initial expenses. These expenses have to be adjusted in the final account to be rendered by the RP against remuneration and other expenses and is subject to final approval bytheFinancial Creditor /Creditorsas thecase may be.

21.Registry isdirected to senda copy ofthis order to theFinancial Creditors interms of Section 100(3)of theCode.

22.Company Petition No. 163 of 2021 is thus admitted. I.A. (I.B.C)1176(KB)/2022 is dismissed.

23.Post thismatter forfurther consideration on13.12.2024.

Balraj Joshi BidishaBanerjee Member(Technical) Member(Judicial)

Singedonthis,the04thofNovember,2024

MB/FA

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