Shrenik Ashokbhai Morakhia vs Reliance Asset Reconstruction Company ...

[Arising out of order dated 20.03.2024 passed by the Adjudicating Authority (National Company Law Tribunal), Ahmedabad, Division Bench, Court-1 in CP (IB) No.97/(AHM)/2022]

IN THE MATTER OF:

Shrenik Ashokbhai Morakhia Having his residence at: 5, Kalyan Society, (Navjan Society), Opp. Nagri Hospital, Ellisbridge Mithakhali, Ahmedabad - 380 006 ...Appellant

Versus

1. Reliance Asset Reconstruction Company Ltd. Having its address at: 11th Floor, North Side, R-Tech Park, Western Express Highway, Goregaon East, Mumbai - 400 063 Email id: rarc.info@relianceada.com;

2. Mahesh R. Sureka Having his office at: 173, Udyog Bhavan Sonawala Road, Goregaon East Mumbai - 400063 Email id: mahesh@mrsureka.com ...Respondents

Present: For Appellant: Mr. Pranit Bhattacharya and Mr. Raj Sarit Khare, Advocates.

For Respondents: Mr. Bharat Sood, Mr. P.S. Sudheer, Ms. Anne Mathew and Ms. Miranda Solaman, Advocates for R-1.

Cont'd.../ -2-

JUDGMENT

ASHOK BHUSHAN, J.

This Appeal by a Personal Guarantor of the Corporate Debtor has been filed

challenging the order dated 20.03.2024. passed by the Adjudicating

Authority (National Company Law Tribunal), Ahmedabad Division Bench,

Court No.1 by which Section 95 application filed by the Financial Creditor

has been admitted. Brief facts of the case necessary to be noticed for

deciding the appeal are:

(i) Dena Bank has issued a Sanction Letter dated 18.06.2012 to

the Corporate Debtor - M/s Morakhia Metals and Alloy Pvt.

Ltd. The Corporate Debtor was granted credit facility to the

extent of Rs.32.15 Crore.

(ii) The Appellant along with one Mr. Pankaj Kumar Morakhia

executed a Joint Deed of Guarantee dated 25.07.2012 in

favour of the Dena Bank in order to secure the loan facility.

(iii) On 31.05.2015, the account of the Corporate Debtor was

declared NPA.

(iv) On 04.03.2016, the Bank invoked Personal Guarantee dated

25.07.2012 and demanded the repayment of a sum of Rs.26.68

crore from the Appellant within 15 days.

(v) On 29.01.2018, Appellant issued a Declaration-cum-

Undertaking in favour of Dena Bank. Dena Bank assigned the

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loan facility in favour of Respondent No.1 - Reliance Asset

Reconstruction Company Ltd.

(vi) On an application under Section 7 filed by the Financial

Creditor, the Adjudicating Authority initiated CIRP against the

Corporate Debtor by order dated 19.02.2020, in which

proceeding Resolution Plan was also approved.

(vii) The Financial Creditor issued Demand Notice dated

12.07.2021 in Form B under Rule 7(1) of the Insolvency and

Bankruptcy (Application to the Adjudicating Authority for

Insolvency Resolution Process of Personal Guarantors to

Corporate Debtor) Rules, 2019 claiming an amount of

Rs.27,81,33,386 and thereafter on 10.08.2021, Section 95

application was filed by the Financial Creditor.

(viii) On 19.04.2022, Resolution Professional was appointed, who

submitted a report. The Appellant also filed its reply alleging

that petition is barred by time. Rejoinder was also filed by the

Financial Creditor.

(ix) The Adjudicating Authority heard both the parties and vide

order dated 20.03.2024 passed an order of admission under

Section 100 of the Code. Aggrieved by which order this Appeal

has been filed.

2. We have heard Shri Pranit Bhattacharya, learned counsel for the

Appellant and Shri Bharat Sood, learned counsel appearing for Respondent

No.1 - Financial Creditor.

Company Appeal (AT) (Insolvency) No.719 of 2024 -4-

3. Learned counsel for the Appellant challenging the order submits that

date of default having occurred on 04.03.2016, the application under

Section 95 having been filed on 10.08.2021 is beyond the period of three

years and barred by time. The three years' period stood expired on

04.03.2019 and thereafter no application under Section 95 could have

been filed by the Bank. It is further submitted that the Dena Bank having

already invoked the guarantee dated 25.07.2012, it could not have

assigned debt to Respondent No.1. Assignment Agreement itself is invalid.

It is submitted that the application under Section 95 deserve to be rejected

since it is signed by Resolution Professional who was a proposed Resolution

Professional and not an authorized officer of Respondent No.1.

4. Learned counsel for the Respondent refuting the submissions of

learned counsel for the Appellant submits that the application was not

barred by time. Recall Notice was issued on 04.03.2016 and on 29.01.2018

Appellant issued a Declaration cum Undertaking which is clear

acknowledgement of debt, hence, there will be further extension of

limitation from 29.01.2018 and petition filed on 10.08.2021 could not be

held to be barred by time. It is submitted that in view of order passed by

Hon'ble Supreme Court in Suo Motu Writ Petition (Civil) No. 03 of 2020,

the period from 15.03.2020 to 28.02.2022 was to be excluded and the

application having been filed on 10.08.2021 i.e. during period which stood

excluded by the Hon'ble Supreme Court, cannot be held to be barred by

time. It is submitted that Section 95 application filed by the Financial

Creditor was in accordance with the Rules and there was no defect in the

Company Appeal (AT) (Insolvency) No.719 of 2024 -5-

application. It is submitted that had the application been defective the

Adjudicating Authority ought to have given opportunity to cure the defects.

Since there was no defect in the application, hence, there was no

shortcoming in the application.

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

record.

6. The issue which has been raised by learned counsel for the Appellant

is that application filed by the Financial Creditor was barred by time.

Submission of the Appellant is that the Deed of Guarantee dated

25.07.2012 was invoked by Recall Notice dated 04.03.2016, hence, three

years' period of limitation ended on 04.03.2019 and application filed by the

Financial Creditor on 10.08.2021 was barred by time. Copy of the

Invocation Notice dated 04.03.2016 has been brought on record as

Annexure A-3, which clearly has been addressed to the Appellant and other

Personal Guarantors. The notice demanded an amount of Rs.26.68 crore

within 15 days from the date of notice. After issuance of notice, the

Appellant has issued Declaration cum Undertaking, which has been

brought record as Annexure A-4. The Declaration cum Undertaking dated

29.01.2018 is as follows:

"DECLARATION CUM UNDERTAKING

I, Shrenik Morakhia S/o Shri. Ashok Manilal Morakhia, presently residing at 289, SVP Road, Khetwadi 4th lane, Shribhavan 5th floor, Mumbai-

Company Appeal (AT) (Insolvency) No.719 of 2024 -6-

400004 do hereby solemnly affirm and state on oath as under:

1. I say that I am a Director of M/s. Morakhia Copper & Alloys Pvt. Ltd. (formerly known as M/s. Morakhia Metal & Alloys Pvt Ltd.), and as well a guarantor for the debt outstanding of the said company towards M/s. Reliance Asset Reconstruction Company Ltd., which has become the assignment agreement executed by original lender Dena Bank in favour of Reliance Asset Reconstruction Company Ltd. for assignment of debts of the said company.

2. I say that, I am a member of Morakhia joint family which holds approximately 1.5 acres of land at Marol, Andheri (East), Mumbai, which has been given for development to M/s. Veer Jalaram Builders under a development agreement dated 21.07.2016 which duly registered at Sub registrar office under document no.7768/6513 on 21.07.2016 whereby the Morakhia Family jointly have to receive 45% of the constructed area by the developer which can be freely sold by them.

3. I say that being a member of the Morakhia family I have an undivided share in such property under development and would be entitled to a monetized portion of my share on realization by way of sale proceeds.

4. I say that being a guarantor for the facilities availed by Morakhia Copper & Alloys Pvt. Ltd.,

Company Appeal (AT) (Insolvency) No.719 of 2024 -7-

I hereby create first charge / lien to the extent of my share in the said joint property and undertake to appropriate any proceeds from said property towards the outstanding of dues, if any of Morakhia Copper & Alloys Pv.t Ltd. or as per terms of settlement or mutual understanding in writing agreed with Reliance ARC from time to time.

5. In case of default in said OTS, Reliance ARC may demand the share in the proceeds directly from M/s. Veer Jalaram Builders on my behalf for appropriation towards the dues of the said company.

I solemnly affirm that this declaration is true to the best of my knowledge and belief and that it conceals nothing and that no part of it is false."

7. When we look into the Declaration cum Undertaking, which was

issued by the Appellant, it is clear that said declaration contained the

acknowledgement of debt of the company towards the Financial Creditor.

The acknowledgment of debt in writing is sufficient to extend the period of

limitation as per Section 18 of the Limitation Act. We, thus are satisfied

that the said Declaration cum Undertaking will extend further period of

three years from date of undertaking and the application under Section 95

which was filed on 10.08.2021 cannot be said to be barred by time.

8. The Hon'ble Supreme Court by Suo Motu Writ Petition (Civil) No. 03

of 2020 has excluded the period from 15.03.2020 to 28.02.2022 and in the

Company Appeal (AT) (Insolvency) No.719 of 2024 -8-

present case the application was filed on 10.08.2021 i.e. during the

aforesaid period. The three years' period from date of Declaration cum

Undertaking came to an end on 28.01.2021 i.e. within the period which

was excluded by the Hon'ble Supreme Court by order passed in Suo Motu

Writ Petition (Civil) No. 03 of 2020. We, thus are satisfied that application

cannot be said to be barred by time.

9. The next submission of the Appellant is that the insolvency petition

which has been filed by the Financial Creditor has been signed by

Resolution Professional who was not the authorized officer of Respondent

No.1.

10. Section 95(1) permits a creditor to file an application through a

Resolution Professional for initiating the insolvency resolution process.

Thus, the submission of application by the Financial Creditor through

Resolution Professional is clearly permitted by Section 95(1). We do not

find any defect in the application which was filed by the Financial Creditor

through Resolution Professional i.e. Mahesh R. Sureka, who is also

submitted his written consent in Form A, which is part of the application.

The authorized person of the Financial Creditor has authorized the

Resolution Professional to sing the application in NCLT, Ahmedabad Bench

on behalf of the Financial Creditor, which document has also been brought

on the record along with the appeal. We, thus, do not find any defect in

the application which warrants dismissal of application on this ground. No

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defect was pointed out by the Adjudicating Authority to the Financial

Creditor, which fact is undisputed.

11. In the Written Submission filed by the Appellant, one more

submission is sought to be canvassed i.e. the Personal Guarantee dated

25.07.2012 executed by the Appellant in favour of Dena Bank is an

unstamped document. The letter of guarantee and its execution is not

subject matter of dispute. At no point of time the Appellant ever questioned

the execution of Deed of Joint Guarantee in favour of the Bank. As noted

above, the Appellant has acknowledged the debt by Declaration cum

Undertaking dated 29.01.2018. Further, it is not shown that before the

Adjudicating Authority any argument with regard to Deed of Guarantee

being unstamped has been raised. The status of the Appellant as Personal

Guarantor of the Corporate Debtor was never in question and we are of the

view that on basis of this submission no fault can be found in the impugned

order admitting Section 95 application.

12. The Appellant has submitted that the Assignment Agreement was

not disclosed to the Appellant. The Application under Section 7 was filed

by the Financial Creditor against the Corporate Debtor with regard to same

loan facility, which was admitted by the Adjudicating Authority vide its

order dated 19.02.2020. Thus, when Financial Creditor's status was

accepted in Section 7 proceeding and the application under Section 7 was

admitted against the Corporate Debtor, we are of the view that status of

Financial Creditor as Assignee of the Bank cannot be questioned by the

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Appellant in this proceeding. We do not find any substance in the

submission of the Appellant.

13. Thus, we do not find any error in the order passed by the

Adjudicating Authority admitting Section 95 application. There is no merit

in the appeal. Appeal is dismissed.

[Justice Ashok Bhushan] Chairperson

[Arun Baroka] Member (Technical)

NEW DELHI

13th May, 2024

Archana

Company Appeal (AT) (Insolvency) No.719 of 2024