State Bank Of India vs Mr. V. Ramakrishnan

State Bank of India Stressed Assets Management Branch (SAMB), 1112, Raja Plaza, Avinashi Road, Coimbatore- 641 037, Rep. by Chief Manager. ...Appellant

Vs.

1. Mr. V. Ramakrishnan Residing at C 104, BHEL Nagar, REC Post, Thuvakudy, Thiruchirapalli - 620 015

AND

2. M/s. Veesons Energy Systems Pvt. Ltd. C-14/2, Industrial Estate, Thuvakudy, Thiruchirapalli - 620 015 ...Respondents

Present: For Appellant:- Mr. E. Om Prakash, Senior Advocate with Mr. G. Ashokepathy, Mr. M. Anbalagan, Mr. B. Karunakaran and Mr. Pawan Kishore, Advocates.

For Respondents:- Mr. K.B.S. Bedi, Advocate for 1st Respondent.

Company Appeal (AT) (Insolvency) No. 213 of 2017 2

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

Mr. V. Ramakrishnan (1st Respondent), Director of M/s. Veesons

Energy Systems Pvt. Ltd. ("Corporate Debtor") given personal guarantee

and mortgagor of collateral securities of his assets with the Appellant-

State Bank of India ("Financial Creditor") against the facilities availed by

the 'Corporate Debtor'. In view of the personal Guarantee given by Mr. V.

Ramakrishnan (1st Respondent), he comes within the meaning of

'Personal Guarantor' as defined under sub-section (22) of Section 5 of the

Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "I&B

Code")

2. The State Bank of India ("Financial Creditor") invoked its right

under Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002, (hereinafter referred to as

"SARFAESI Act, 2002") against the 'Personal Guarantor' under Section

13(2) on 4th August, 2015 for recovery of Rs. 61,13,28,785.48/- from the

said 1st Respondent as securities. The notice was challenged by the

'Corporate Debtor' before the Hon'ble High Court of Madras, which was

dismissed with costs on 17th November, 2016. Thereafter, the State Bank

of India ('Financial Creditor') issued a Possession Notice dated 18th

November, 2016 under Section 13(4) of the SARFAESI Act, 2002 and

taken symbolic possession of the secured assets.

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3. Having failed to get relief from Hon'ble High Court of Madras, the

'Corporate Debtor' invoked Section 10 of the 'I&B Code' which was

admitted, order of 'Moratorium' was passed and an 'Interim Resolution

Professional' was appointed.

4. Even after declaration of the 'Moratorium', the Appellant- State

Bank of India ('Financial Creditor') continued to take measure under

SARFAESI Act, 2002 and proceeded against the property of the 'Personal

Guarantor' (1st Respondent) and issued Sale Notice on 12th July, 2017.

5. Being aggrieved the 'Personal Guarantor' (1st Respondent), who is

also the promotor of the 'Corporate Debtor' filed application before the

Adjudicating Authority (National Company Law Tribunal), Chennai, for

stay of proceedings under SARFAESI Act 2002, including the auction

notice dated 12th July, 2017. The Adjudicating Authority by impugned

order dated 18th September, 2017 observed that 'Moratorium' prohibits

transferring, encumbering, alienating or disposing of by the 'Corporate

Debtor' any of its assets or any legal right or beneficial interest therein.

6. In view of the provisions of 'I&B Code', Section 140 of the Indian

Contract Act, 1872 and the decision of the Hon'ble High Court of Madras,

the Adjudicating Authority allowed the Interlocutory Application

preferred by the 'Personal Guarantor', and restrained the Appellant- State

Bank of India ('Financial Creditor') from proceeding against the 'Personal

Guarantor' till the period of 'Moratorium' is over.

Company Appeal (AT) (Insolvency) No. 213 of 2017 4

7. Learned counsel for the Appellant submits that the order of

'Moratorium' will not affect the assets of the 'Personal Guarantor'. On the

other hand, according to counsel for the Respondents, in view of sub-

section (1)(b) of Section 14 and sub-section (1) of Section 31 of the 'I&B

Code', the Appellant- State Bank of India ('Financial Creditor') cannot

proceed even against the 'Personal Guarantor'.

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

record.

9. 'I&B Code, 2016' is in three parts. Part I- 'Preliminary' including

the definitions given therein applies to both Part II- 'Insolvency Resolution

and Liquidation for Corporate Persons' and Part III- 'Insolvency

Resolution and Bankruptcy for Individuals and Partnership Firms'.

10. As per Part II, 'Insolvency Resolution' and 'Liquidation Proceedings'

can be initiated only against the 'Corporate Persons' and not against an

individual, including 'Personal Guarantor', as defined under sub-section

(22) of Section 5 of the 'I&B Code' and reads as follows: -

"5. Definitions. ─ .............(22) "personal guarantor"

means an individual who is the surety in a contract

of guarantee to a corporate debtor."

11. For the purpose of sub-section (8) of Section 5 of the 'I&B Code',

though counter-indemnity obligation in respect of a guarantee, if

Company Appeal (AT) (Insolvency) No. 213 of 2017 5

disbursed against the consideration for the time value of money comes

within the meaning of 'Financial Debt', no insolvency and liquidation

proceeding can be initiated against the 'Personal Guarantor' under Part

II.

12. Part III relates to 'Insolvency Resolution and Bankruptcy for

Individuals and Partnership Firms', including a person who is 'Personal

Guarantor'. For the said reason, in a case where proceeding has been

initiated against the 'Corporate Debtor', if simultaneous proceeding is to

be initiated against the 'Personal Guarantor' for bankruptcy proceedings,

an application relating to the 'Insolvency Resolution or Bankruptcy' of a

'Personal Guarantor' of such 'Corporate Debtor' require to be filed before

the same Adjudicating Authority (National Company Law Tribunal)

hearing the 'Insolvency Resolution Process' or 'Liquidation Proceedings'

of a 'Corporate Debtor'. This is, as apparent from sub-sections (2) & (3) of

Section 60 of the 'I&B Code', which is quoted below: -

"60. Adjudicating Authority for corporate

persons. ─ ................ (2) Without prejudice to sub-

section (1) and notwithstanding anything to the

contrary contained in this Code, where a corporate

insolvency resolution process or liquidation

proceeding of a corporate debtor is pending before a

National Company Law Tribunal, an application

relating to the insolvency resolution or bankruptcy of

Company Appeal (AT) (Insolvency) No. 213 of 2017 6

a personal guarantor of such corporate debtor shall

be filed before such National Company Law Tribunal.

(3) An insolvency resolution process or bankruptcy

proceeding of a personal guarantor of the corporate

debtor pending in any court or tribunal shall stand

transferred to the Adjudicating Authority dealing with

insolvency resolution process or liquidation

proceeding of such corporate debtor."

13. Therefore, a 'Financial Creditor', including Appellant-State Bank of

India, if intends to proceed against the 'Personal Guarantor' of the

'Corporate Debtor', may file an application relating to 'Bankruptcy' of the

'Personal Guarantor' before the same Adjudicating Authority ('Division

Bench, Chennai' herein). Though, Part III of the 'I&B Code' has not yet

notified but the Adjudicating Authority is vested with all the powers of

the Debt Recovery Tribunal (Adjudicating Authority under Part III) as

contemplated under Part III of the 'I&B Code' for the purpose of sub-

section (2) as apparent from sub-section (4) of Section 60 of the 'I&B Code'

as quoted below: -

"60. Adjudicating Authority for corporate

persons. ─ (4) The National Company Law Tribunal

shall be vested with all the powers of the Debt

Recovery Tribunal as contemplated under Part III of

this Code for the purpose of sub-section (2).

Company Appeal (AT) (Insolvency) No. 213 of 2017 7

14. Section 14 of the 'I&B Code' empowers the Adjudicating Authority

to declare 'Moratorium' for prohibiting all of the matters as stipulated

thereunder and quoted below:

"14. Moratorium. ─ (1) Subject to provisions of sub-

sections (2) and (3), on the insolvency commencement

date, the Adjudicating Authority shall by order

declare moratorium for prohibiting all of the following,

namely:--

(a) the institution of suits or continuation of

pending suits or proceedings against the

corporate debtor including execution of any

judgment, decree or order in any court of law,

tribunal, arbitration panel or other authority;

(b) transferring, encumbering, alienating or

disposing of by the corporate debtor any of its

assets or any legal right or beneficial interest

therein;

(c) any action to foreclose, recover or enforce

any security interest created by the corporate

debtor in respect of its property including any

action under the Securitisation and

Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002;

Company Appeal (AT) (Insolvency) No. 213 of 2017 8

(d) the recovery of any property by an owner

or lessor where such property is occupied by

or in the possession of the corporate debtor.

(2) The supply of essential goods or services to the

corporate debtor as may be specified shall not be

terminated or suspended or interrupted during

moratorium period.

(3) The provisions of sub-section (1) shall not apply to

such transactions as may be notified by the Central

Government in consultation with any financial sector

regulator.

(4) The order of moratorium shall have effect from the

date of such order till the completion of the corporate

insolvency resolution process:

Provided that where at any time during the

corporate insolvency resolution process period, if the

Adjudicating Authority approves the resolution plan

under sub-section (1) of section 31 or passes an

order for liquidation of corporate debtor under

section 33, the moratorium shall cease to have effect

from the date of such approval or liquidation order,

as the case may be."

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15. On bare perusal of the aforesaid provisions, it is clear that not only

institution of suits or continuation of pending suits or proceedings

against the 'Corporate Debtor' are prohibited from proceedings, in terms

of clause (b) of sub-section (1) of Section 14 of the 'I&B Code', transfer,

encumbrance, alienation or disposal of any of its assets of the 'Corporate

Debtor' and/ or any legal right or beneficial interest therein are

prohibited. Clauses (c) & (d) of sub-section (1) of Section 14 of the 'I&B

Code' prohibits recovery or enforcement of any security interest created

by the corporate debtor in respect of its property including the property

occupied by it or in the possession of the 'Corporate Debtor'.

16. Sub-section (1) of Section 31 relates to 'approval of resolution plan',

which reads as follows: -

"31. Approval of resolution plan. ─ (1) If the

Adjudicating Authority is satisfied that the resolution

plan as approved by the committee of creditors under

sub-section (4) of section 30 meets the requirements

as referred to in sub-section (2) of section 30, it shall

by order approve the resolution plan which shall be

binding on the corporate debtor and its employees,

members, creditors, guarantors and other

stakeholders involved in the resolution plan."

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17. From the aforesaid provisions, it is clear that 'Resolution Plan' if

approved by the 'Committee of Creditors' under sub-section (4) of Section

30 and if the same meets the requirements as referred to in sub-section

(2) of Section 30 and once approved by the 'Adjudicating Authority' is not

only binding on the 'Corporate Debtor', but also on its employees,

members, creditors, guarantors and other stakeholders involved in the

'Resolution Plan', including the 'Personal Guarantor'.

18. In view of the aforesaid provisions, we hold that the 'Moratorium'

will not only be applicable to the property of the 'Corporate Debtor' but

also on the 'Personal Guarantor'.

19. For the reasons aforesaid, we are not inclined to interfere with the

impugned order dated 18th September, 2017 passed by the Adjudicating

Authority and dismiss the appeal. However, in the facts and

circumstances of the case, there shall be no order as to cost.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice Bansi Lal Bhat) Member(Judicial)

NEW DELHI 28th February, 2018

/AR/

Company Appeal (AT) (Insolvency) No. 213 of 2017