Mr. Dhiraj Singh Director (Powers ... vs Piramal Capital & Housing ...

[Arising out of order dated 11.07.2023 passed by the Adjudicating Authority (National Company Law Tribunal), Allahabad Bench, Prayagraj in CP (IB) No.59/ALD/2022]

IN THE MATTER OF:

Mr. Dhiraj Singh Director (Powers Suspended) Earthbuild Greencity Private Limited Address: 108 Railway Colony, Jai Nigam Road, Bala Ganj, Lucknow - 2260003 E-mail: dk.singh2700.ds81@gmail.com ...Appellant

Versus

M/s Piramal Capital and Housing Finance Limited (erstwhile Dewan Housing Finance Corporation Limited) Having its registered office at: 601, 6th Floor, Amiti Building, Agastya Corporate Park, Kamini Junction, Opp. Fire Station, LBS Marg, Kurla (W), Mumbai - 400070. (Through its authorized signatory Ms. Mariam Zaidi) Email: Mariam.zaidi1992@gmail.com; cs.team@piramal.com; kunalrsingh@gmail.com

Mr. Ankit Goel Resolution Professional Earthbuild Greencity Private Limited Address: E-10A, Kailash Colony, Delhi - 110048 Email: ankitgoel@aaainsolvency.in ...Respondents

Present: For Appellant: Mr. Gaurav Mitra, Mr. Shantanu Singh, Mr. Ravi Sehgal and Mr. Adit Singh, Advocate. For Respondents: Mr. Jayant K. Sud, Sr. Advocate with Ms. Bihu Sharma and Mr. Shashank Singh, Advocates for R-1. Mr. Amar Vivek and Ms. Ritika Gaur, Advocates for RP

Cont'd.../ -2-

JUDGMENT

ASHOK BHUSHAN, J.

This Appeal has been filed by the Suspended Director of the Corporate

Debtor challenging order dated 11.07.2023 passed by the Adjudicating

Authority (National Company Law Tribunal), Allahabad Bench, Prayagraj

by which Section 7 application filed by the Financial Creditor - Piramal

Capital and Housing Finance Limited has been admitted. Aggrieved by the

order this Appeal has been filed. Brief facts necessary to be noticed for

deciding this appeal are:

(i) A Loan Agreement was entered between Crystal Facilities

Management Private Limited (hereinafter referred to as 'Principal

Borrower') and Dewan Housing Finance Corporation Limited on

29.03.2018. Mortgage Loan was sanctioned for Rs.35 Crores.

(ii) A Deed of Corporate Guarantee was executed on 29.03.2018. The

Corporate Debtor - M/s Earthbuild Greencity Private Limited was

one of the Corporate Guarantor of the loan.

(iii) Default was committed in repayment of the loan. On 22.02.2020,

a notice was issued by the Dewan Housing Finance Corporation

Limited to the Principal Borrower as well as the Mortgagors and

Guarantors including M/s Earthbuild Greencity Private Limited

(Corporate Guarantor) by which notice borrower as well as

Company Appeal (AT) (Insolvency) No.1255 of 2023 -3-

Corporate Guarantor were asked to pay Rs.37,17,10,172/- within

seven days of the receipt of the notice. No payment was made in

pursuance of the demand notice.

(iv) The Financial Creditor issued another notice dated 12.02.2021

which was addressed to the Corporate Guarantors and other

Guarantors and Borrower asking for payment of

Rs.43,23,76,718/- within 15 days.

(v) In the Corporate Insolvency Resolution Process of DHFL,

Resolution Plan submitted by Piramal Capital and Housing

Finance Limited was approved, whose name was subsequently

changed to Piramal Capital and Housing Finance Limited.

(vi) Application under Section 7 was filed by the Piramal Capital and

Housing Finance Limited, the Financial Creditor against the

Corporate Debtor - M/s Earthbuild Greencity Private Limited on

which CP (IB) No.59/ALD/2022 was registered. Another

application was filed by the Financial Creditor against the

Principal Borrower - M/s Crystal Facilities Management Private

Limited being CP (IB) No.439/ND/2022.

(vii) In CP (IB) No.59/ALD/2022 notices were issued to the Corporate

Debtor. None appeared on behalf of the Corporate Debtor. The

Adjudicating Authority passed an order for substituted service on

07.12.2022 against the Corporate Debtor, in pursuance of which,

Company Appeal (AT) (Insolvency) No.1255 of 2023 -4-

notices were published in the newspapers; Times of India,

Lucknow Edition on 13.01.2023 and Amar Ujala, Lucknow

Edition on 12.01.2023. Affidavit of service was filed before the

Adjudicating Authority by the Financial Creditor. The

Adjudicating Authority even after affidavit of service gave further

opportunity to the Corporate Debtor to file Reply. When no reply

was filed, the Adjudicating Authority proceeded ex-parte against

the Corporate Debtor by order dated 16.05.2023.

(viii) The Adjudicating Authority by order dated 11.07.2023 admitted

Section 7 application and appointed the IRP. Appellant aggrieved

by the order has come up in this appeal.

2. We have heard Shri Gaurav Mitra, learned counsel for the Appellant,

Shri Jayant K. Sud, learned senior counsel appearing for Respondent No.1

and Mr. Amar Vivek and Ms. Ritika Gaur, learned counsel for Resolution

Professional.

3. Shri Gaurav Mitra, learned counsel for the Appellant submitted that

the Guarantee was invoked against the Corporate Debtor by notice dated

12.02.2021 which notice has been brought on the record at Annexure A-4

in the appeal filed by the Appellant and it is submitted that the guarantee

having been invoked on 12.02.2021 i.e. during 10A period, application filed

by the Financial Creditor is barred by Section 10A. It is further submitted

that notice dated 22.02.2020 was not served on the Corporate Debtor. It

Company Appeal (AT) (Insolvency) No.1255 of 2023 -5-

is submitted that invocation of guarantee being during 10A period,

application was liable to be rejected on this ground.

4. Learned counsel appearing for the Respondent refuting the

submission of learned counsel for the Appellant submits that notice dated

22.02.2020 was issued to the Principal Borrower as well as Corporate

Guarantor (Corporate Debtor) and both the Principal Borrower and the

Corporate Debtor were asked to pay the outstanding dues which stood

invoked on 22.02.2020, which was much before the 10A period. The

application was fully maintainable and is not hit by Section 10A. It is

submitted that in the Section 7 application, the Appellant has also brought

on record the certificate of National E-Governance Services Limited (NeSL)

which also prove the default against the Principal Borrower as well as the

Corporate Debtor, who was Guarantor of the loan. It is submitted that

against the Principal Borrower also Section 7 application was filed which

has been admitted by the Adjudicating Authority by order dated

19.01.2023. In proceeding against the Principal Borrower, notice dated

22.02.2020 was referred and relying on the said notice, the Adjudicating

Authority has admitted Section 7 application.

5. We have heard learned counsel for the parties and perused the

record.

6. The Adjudicating Authority in the impugned order has returned

finding that despite opportunities, no appearance was made on behalf of

the Corporate Debtor. Respondent has also filed its reply in this appeal,

Company Appeal (AT) (Insolvency) No.1255 of 2023 -6-

where the Respondent has brought on the record the order of the

Adjudicating Authority dated 07.12.2022, where the Adjudicating

Authority has permitted for substituted service. Order dated 07.12.2022

is as follows:

"ORDER

It is stated by Ld. Counsel for the petitioner that the notice issued to respondent was received back with report that address is not complete. So, it is requested by the Ld. Counsel for the petitioner that substituted mode of service may be allowed.

Ld. Counsel for the petitioner is directed to publish the notice in two newspapers one in 'Hindi' and other in 'English', the circulation of which is prevalent in the locality where the registered office of the corporate debtor is situated, within one week and report be filed along with affidavit of service one week before the next date of hearing.

Let the matter be listed on 10th February, 2023."

7. Respondent has also brought on the record 'Affidavit of Service'

which indicate that notice was published in two newspapers one in Hindi

- Amar Ujala, Edition Lucknow on 12.01.2023 and in English - Times of

India, Edition Lucknow on 13.01.2023. Despite publication of notice in the

newspapers, the Corporate Debtor did not appear before the Adjudicating

Authority and raised any defense.

Company Appeal (AT) (Insolvency) No.1255 of 2023 -7-

8. It is also relevant to notice that against the Principal Borrower,

Section 7 application has already been admitted where proceedings were

initiated relying on notice dated 22.02.2020. The order passed in the CIRP

of the Principal Borrower in Section 7 application dated 19.01.2023 has

been brought on record by the Appellant in its appeal as Annexure -2. Para

1(v) notices the case of the Financial Creditor where notice dated

22.02.2020 has been noted. Para 1(v) of order dated 19.01.2023 is as

follows:

"v. That the Applicant / Financial Creditor had issued a recall notice dated 22.02.2020 to the Corporate Debtor, for an amount of Rs. 37,17,10,172/- (Rupees Thirty Seven Crores Seventeen Lakhs Ten Thousand One Hundred and Seventy Two) as on 22.02.2020. The said amount incorporated the principal outstanding, interest, default interest and other charges. Despite receipt of the said recall notice, the Corporate Debtor continued to be in default and failed to pay the outstanding amounts. The Corporate Debtor continues to be in default and miserably failed to discharge the said liability and the said amount remains to be paid and due. Thus, the Corporate Debtor is commercially insolvent and is not in a position to meet its liabilities."

9. With regard to notice dated 22.02.2020 two submissions have been

made by the Appellant. The first submission is that notice dated

22.02.2020 was not notice for invoking guarantee of the Corporate

Guarantor and guarantee of the Corporate Debtor was only invoked by

notice dated 12.02.2021. Secondly, the notice dated 22.02.2020 was never

Company Appeal (AT) (Insolvency) No.1255 of 2023 -8-

served on the Corporate Debtor. The copy of notice dated 22.02.2020 has

not been filed along with the appeal, however, the Respondent in his reply

has brought on record the said notice as Annexure R-10. Notice dated

22.02.2020 has been addressed to Principal Borrower as well as

Mortgagors and Corporate Guarantors including the Corporate Debtor -

M/s Earthbuild Greencity Private Limited. In Para 6 and 7 of the notice

following has been stated:

"vi. In view of the foregoing, we hereby call upon the Borrower, the Mortgagors and the Guarantors named in this notice, to pay the outstanding amount of Rs.37,17,10,172/-(INR Thirty Seven Crore Seventeen Lakhs ten thousand one hundred seventy two) as on (Feb 22, 2020 in your loan account plus other charges and interest accrued till the date of Loan closure, within 7 (seven) days from the receipt of this notice.

vii. In the event of your failure to pay the said amount within 7 (seven) days, DHFL will be constrained to initiate appropriate legal proceedings against all of you including

enforcement of our rights under the provisions of the SARFAESI Act/ initiate the proceedings under the Insolvency and Bankruptcy Code 2016 and all other Laws, as applicable, for recovery of the amount due and payable under the Loan A/c. as stated hereinabove."

Company Appeal (AT) (Insolvency) No.1255 of 2023 -9-

10. The above notice clearly indicates that by the notice Borrower and

Guarantors were asked to pay the outstanding amount and the notice

clearly mention that in event of failure of payment within seven days, the

Financial Creditor shall initiate proceedings under SARFAESI Act including

proceedings under the I&B Code. We, thus, are of the view that notice

dated 22.02.2020 was notice by which guarantee stood invoked and

submission of the Appellant that said notice was not notice of invocation

of guarantee, cannot be accepted.

11. In so far as, subsequent notice which was given to the Financial

Creditor being notice dated 12.02.2021, it has been submitted by the

Financial Creditor that since no payment was made in pursuance of the

notice dated 22.02.2020 another letter was issued on 12.02.2021.

Corporate Guarantee was thus invoked on 22.02.2020 and issuance of

another notice shall not in any manner affect the right of the Financial

Creditor to initiate proceeding under Section 7. Section 7 application filed

by the Financial Creditor has been brought on record, which clearly

mentioned the notice date as 22.02.2020 which has been referred as Recall

Notice issued by the Financial Creditor. When Recall Notice has been

issued by the Financial Creditor, the Principal Borrower and Guarantors,

liability to pay arises on all and the submission of the Corporate Debtor

relying on subsequent notice dated 12.02.2021 cannot affect the right of

the Financial Creditor to initiate proceeding on the basis of notice dated

22.02.2020. Even though subsequent notice dated 12.02.2021 was during

10A period but Recall Notice having been issued on 22.02.2020, the

Company Appeal (AT) (Insolvency) No.1255 of 2023 -10-

Financial Creditor was entitled to initiate Section 7 proceedings against the

Principal Borrower as well as the Guarantors.

12. When we look into the Section 7 application filed by the Financial

Creditor, it is clear that claim is founded on Loan Recall Notice dated

22.02.2020 and date of default mentioned in the application was

15.04.2018. The submission of the learned counsel for the Appellant that

Loan Recall Notice dated 22.02.2020 was not served on the Appellant does

not impress us since the Appellant despite notice by the Adjudicating

Authority did not appear and file any response before the Adjudicating

Authority refuting the Recall Notice dated 22.02.2020 or to raise any

defense to oppose Section 7 application. Inspite of the substituted service

as directed vide order dated 07.12.2022, the Corporate Debtor never

appeared before the Adjudicating Authority nor raised any defense nor

refuted service of notice dated 22.02.2020.

13. From the facts brought on the record, it is clear that after April, 2018

no payments have been made either by the Principal Borrower or the

Corporate Guarantor towards the loan. Certificate issued by NeSL was also

brought on the record in support of Application under Section 7 where

default has been proved. It is true that date of default i.e. 15.04.2018 was

initially date of default of Principal Borrower but Loan Recall Notice had

been issued on 22.02.2020 which was addressed to Principal Borrower as

well as all Guarantors including the Corporate Debtor - M/s Earthbuild

Company Appeal (AT) (Insolvency) No.1255 of 2023 -11-

Greencity Private Limited. The application filed by the Financial Creditor

cannot be held to be barred by Section 10A.

14. In view of the foregoing discussion and conclusions, we are of the

view that no grounds have been made out to interfere with the impugned

order passed by the Adjudicating Authority admitting Section 7 application.

Appeal is dismissed.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

[Arun Baroka] Member (Technical)

NEW DELHI

5th March, 2024

Archana

Company Appeal (AT) (Insolvency) No.1255 of 2023