Neon Laboratories Limited vs Mayank Shah And Anr

Comp. App. (AT) (Ins) No. 1622 of 2023 & I.A. No. 5860, 5861, 5862 of 2023

IN THE MATTER OF: Neon Laboratories Ltd. ...Appellant

Versus

Mayank Shah & Anr. ...Respondents Present: For Appellants : Mr. Nikhil Goel, Sr. Adv, with Vaibhav Tomar, Adv. For Respondent : Mr. Paras Mithal, Devashish Chauhan, Adv. for R1 Mr. Malak Bhatt, Neeha Nagpal, Shreyansh Chopra, Adv. for R2

JUDGMENT

Pre: Justice Rakesh Kumar Jain:

This appeal is filed by Neon Laboratories Ltd. (Operational

Creditor), against the order dated 21.11.2023, passed by the

Adjudicating Authority (National Company Law Tribunal,

Mumbai Bench) by which I.A. No. 2044 of 2022, filed under

Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (in

short 'Code') by Mr. Mayank Shah (Intervenor) in CP (IB) No.

794/MB/2022, filed by the Operational Creditor for initiation of

Personal Insolvency Resolution Process (in short 'PIRP') in the

matter of Mr. Praful Nanji Satra (Personal Guarantor/Corporate

Comp. App. (AT) (Ins) No. 1622 of 2023 2

Debtor) under Section 95 of the Code, has been disposed of and

CP (IB) No. 794 of 2022 has been dismissed. Besides that the

Adjudicating Authority has imposed a cost of Rs. 5,00,000/-

upon the Appellant on the ground that CP (IB) No. 794 of 2022

has been filed by the Appellant in collusion with the Corporate

Debtor to thwart the proceedings pending before the Hon'ble

Bombay High Court and cost has been ordered to be deposited in

Bharatkosh Account within 15 days from the date of the order.

2. In brief, a deed of personal guarantee dated 27.07.2011 was

entered into between the Appellant (Lender), Satra Properties

(India) Ltd. (SPIL) (Borrower) and Praful Nanji Satra (Corporate

Debtor) as the personal guarantor of the Borrower.

3. Clause 3 of the said guarantee deed is relevant in this case

which is reproduced as under:-

"The Guarantor agree that the amount hereby guaranteed shall be duly payable by the Guarantor to the Neon within 60 days from the date of demand notice served by the Neon requiring payment of the amount. Any such demand made by the Neon on the Guarantor shall be conclusive as regards the amount claimed therein having become due and payable by the borrower to the Neon in respect of the said ICD amount mentioned herein and also conclusive as regards the

Comp. App. (AT) (Ins) No. 1622 of 2023 3

default having been committed by the Borrower in repayment of the said amount to the Neon and will pay the amount demanded forthwith on receipt of the demand notice. Any such demand notice sent by the Neon by hand delivery or by post to the Guarantor at his address mentioned hereinabove or such address as may be known to the Neon shall be deemed to be duly served on the Guarantor at the time when the notice would in the ordinary course of the post be delivered at such address. It is agreed that the Neon may in its sole discretion invoke this Guarantee."

4. Mr. Mayank Shah (Intervenor/Respondent No. 1) filed an

Arbitration Petition No. 304 of 2021 before the Hon'ble Bombay

High Court under Section 9 of the Arbitration and Conciliation

Act, 1996 (in short 'Act'), inter alia, for depositing the claim

amount of Rs. 131,02,82,634/-.

5. It is alleged that when the arbitration petition, filed by

Respondent No. 1, was at the stage of passing of the orders

against Respondent No. 2 (personal guarantor/debtor), the

Appellant filed a petition under Section 95 of the Code and in

view of Section 96 of the Code, interim moratorium became

operative and the arbitration proceedings were postponed by the

Hon'ble Bombay High Court.

Comp. App. (AT) (Ins) No. 1622 of 2023 4

6. The Adjudicating Authority found that the demand notice in

Form B under Rule 7 (1) of the IBBI (Application to Adjudicating

Authority for Insolvency Resolution Process of personal guarantor

to Corporate Debtor) Rules, 2019 (in short 'Rules') was alleged to

have been served by the Appellant upon Respondent No. 2 by

hand on 01.11.2021 whereas the petition under Section 9 of the

Act was filed on 30.11.2021. It is also found that on 01.12.2021,

the petition under Section 95 of the Code was served on

Respondent No. 2 and filed before the Adjudicating Authority on

02.12.2021 which led to the adjournment of the arbitration

proceedings sine-die on 03.12.2021 on account of moratorium

became operated on 02.12.2021 in terms of Section 96 of the

Code.

7. The CIRP proceedings against the Borrower were initiated by

Vistra ITCL (India) Ltd. under Section 7 of the Code bearing CP

(IB) No. 1632/MB/2019 which was admitted on 03.08.2020.

8. Case of the Appellant is that the Borrower owed a sum of

Rs. 30,305,675/- being Rs. 1,75,00,000/- (Principal) and Rs.

1,28,05,675/- (Interest) for which the personal guarantee was

invoked vide letter dated 01.12.2021 demanding the aforesaid

amount and since no reply was filed to the demand notice, filed

Comp. App. (AT) (Ins) No. 1622 of 2023 5

the petition under Section 95 of the Code after 30 days though it

could have been filed after 14 days in terms of Section 95(4)(b) of

the Code. The Tribunal allowed the application filed by the

Intervenor, inter alia, on the ground that not only the petition

filed under Section 95 was premature because it was agreed

between the parties, in terms of the personal guarantee dated

27.07.2011, that the Guarantor shall pay to the Lender the

amount duly payable within 60 days from the date of demand

notice served by the Lender requiring payment of the amount and

the alleged demand notice was issued on 01.11.2021, treated as

notice of invocation of guarantee and the petition was filed on

02.12.2021 before the expiry of period of 60 days and hence, it

was premature but also it has been found that the Appellant was

in collusion with the CD in initiating the proceedings under

Section 95 in order to stall the proceedings initiated by

Respondent No. 1 under Section 9 of the Act asking for

depositing the amount of Rs. 131,02,82,634/- and the petition

under Section 95 came to be filed when the matter was ripe

before the Hon'ble Bombay High Court for decision but because

of Section 96, the proceedings have been adjourned sine die and

on that account not only the application no. 2044 of 2022 filed by

Comp. App. (AT) (Ins) No. 1622 of 2023 6

Respondent No. 1 has been disposed of in his favour but also CP

(IB) No. 794 of 2022 filed by the Appellant was held to be

premature and collusive, has been dismissed with costs of Rs. 5

lac.

9. Counsel for the Appellant has vehemently argued that

period of service of demand notice has to be counted in terms of

Section 95(4)(b) of the Code and the period mentioned in the

guarantee agreement should not be taken into consideration. It is

submitted that Section 238 of the Code overrides the provisions

of Indian Contract Act and in this regard, reference has been

made to a decision of this Court in the case of K.V Jayaprakash

Vs. State Bank of India & Anr., CA (AT) (Ins) No. 362 of 2022

decided on 30.09.2022. He has also submitted that the allegation

of collusion has to be proved on the basis of the evidence and

relied upon a decision of the Hon'ble Supreme Court in the case

of Ratnagiri Gas and Power (P) Ltd. Vs. RDS Projects Ltd., (2013)

1 SCC 524.

10. On the other hand, Counsel for Respondent No. 1 has

submitted that he has filed the arbitration proceedings on

30.11.2021 which was fully heard on the same day and was

adjourned to 03.12.2021 for passing of the orders but the

Comp. App. (AT) (Ins) No. 1622 of 2023 7

Appellant issued a demand notice in Form B of back date i.e

01.11.2021 served upon Respondent No. 2 by hand and filed the

application under Section 95 of the Code on 01.12.2021, two

days before the date fixed by the Hon'ble High Court in the

arbitration proceedings i.e. 03.12.2021, as a result thereof, the

proceedings pending before the Hon'ble High Court were

adjourned sine die in view of Section 96 of the Code. It is further

submitted that in the 11th meeting of the CoC of SPIL held on

26.08.2021, attended by all the Financial Creditors in which the

Appellant was represented by Rakesh Parmar in his capacity as

the director. Respondent No. 2 sought permission for submitting

resolution plan before the CoC. The Chairman of the said

meeting, considering the request made by the personal guarantor

observed that IBBI (Insolvency Resolution Process for Corporate

Persons) Regulations, 2016 do not permit the consideration of

any plan received after the last date of submission in terms of the

Expression of Interest (EOI) unless the process commence afresh

and since the last date for completion of CIRP was 23.09.2021,

adequate time was not available for issuance of fresh EOI unless

excluded by the Tribunal. It was also stated that when the

resolution plan was pending for consideration, such permission

Comp. App. (AT) (Ins) No. 1622 of 2023 8

was not given unless the CoC decided to scrap the process and

restart the process afresh. At that time, Rakesh Parmar,

representative of the Appellant supported Respondent No. 2

stating that he should be permitted to submit a resolution plan.

He has further submitted that the judgments relied upon by the

Appellant are not appliable in as much as the judgment in the

case of K.V Jayaprakash (Supra) is on the issue that the approval

of the resolution plan does not ipso facto discharge a personal

guarantor of a Corporate Debtor of her or his liabilities under the

contract of guarantee and the decision in the case of Ratnagiri

Gas and Power (Supra) is on the administrative law. It is further

submitted that the parties are bound by the terms and conditions

of the guarantee in which it has been specifically provided that

after the demand is raised, the amount shall be payable by the

guarantor within 60 days which means that the period of 60 days

is provided to the personal guarantor from invocation of the

guarantee by the lender. In case the amount is paid within this

period then no petition under Section 95 could have been filed

and in case the amount is not paid within 60 days, despite

demand having been raised, the petition under Section 95 can be

filed.

Comp. App. (AT) (Ins) No. 1622 of 2023 9

11. We have heard Counsel for the parties and perused the

record with their able assistance.

12. The facts are not in dispute that a personal guarantee deed

was executed on 27.07.2011 amongst the Appellant as a lender,

SPIL as the Borrower and Respondent No. 2 as the Guarantor.

Clause 3 of the said agreement categorically lays down that the

Guarantor would pay the amount of ICD of Rs. 1 Cr. 75 Lac to

the lender within 60 days from the date of demand notice served

by the Lender requiring the payment. Therefore, from the plain

reading of this clause it is apparent that the liability to pay by

the Guarantor to the lender shall arise only in two circumstance

firstly, on the service of demand notice and secondly, within the

period of 60 days from the receipt of demand notice. In fact the

time was provided in the agreement to the guarantor to arrange

payment of the lender to avoid legal complications. The right to

file the petition under Section 95 thus would not arise after 14

days of service of the notice in view of the specific agreement

between the parties that after the demand notice is served, 60

days time shall remain available with the guarantor for

discharging his liability whereas in the present case the

demand notice is dated 01.11.2021 and the application was

Comp. App. (AT) (Ins) No. 1622 of 2023 10

filed on 01.12.2021, just after the expiry of one month, which is

contrary to clause 3 of the agreement. In so far as the finding of

the Tribunal about the collusiveness is concerned, not only

Respondent No. 2 has been helping the Appellant in the CoC for

extension of time to submit the resolution plan but also the

petition under Section 95 was timed in such a manner that the

proceedings filed by Respondent No. 1, pending before the

Hon'ble Bombay High Court, in respect of a petition filed under

Section 9 of the Act, may be stayed automatically in view of the

operation of Section 96 of the Code. It is obvious from the dates

because the petition under Section 9 of the Act was filed by

Respondent No. 1 on 30.11.2021 and when the case was

adjourned to 03.12.2021 for orders, the petition under Section 95

was filed on 01.12.2021 as a result of which the petition filed

under Section 9 had to be adjourned by the Hon'ble Bombay

High Court.

13. In these facts and circumstances, we do not find any error

in the findings recorded by the Tribunal for not only allowing the

application of the Respondent No. 1 but also dismissing the

application filed under Section 95 of the Code by the Appellant

and imposition of cost.

Comp. App. (AT) (Ins) No. 1622 of 2023 11

14. No other point has been raised.

15. In view of the aforesaid facts and circumstances, we do not

find any merit in the present appeal and hence, the same is

hereby dismissed. No costs.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Indevar Pandey] Member (Technical)

New Delhi 08th August, 2024

Sheetal

Comp. App. (AT) (Ins) No. 1622 of 2023