State Bank Of India vs R. Siddharth Kumar

IN THE MATTER OF: State Bank of India ...Appellant

Vs. D.S. Rajendra Kumar ...Respondent

Company Appeal (AT) (Insolvency) No. 88 of 2018

IN THE MATTER OF: State Bank of India ...Appellant

Vs. R. Siddharth Kumar ...Respondent

Company Appeal (AT) (Insolvency) No. 89 of 2018

IN THE MATTER OF: State Bank of India ...Appellant

Vs. R. Arihant ...Respondent

Company Appeal (AT) (Insolvency) No. 90 of 2018

IN THE MATTER OF: State Bank of India ...Appellant

Vs. D.S. Raj Kumar ...Respondent 2

Company Appeal (AT) (Insolvency) No. 91 of 2018

IN THE MATTER OF: State Bank of India ...Appellant

Vs. R. Inderjeeth ...Respondent

Present: For Appellant: - Mr. P.V. Dinesh and Mr. Rajender Beniwal, Advocates. For Respondents:- Mr. K.B.S. Bedi, Advocate.

ORDER

18.04.2018- These appeals have been preferred by the State Bank of

India against common order dated 23rd January, 2018 passed by the

Adjudicating Authority (National Company Law Tribunal), Division

Bench, Chennai, which reads as follows:

"All the petitions have been filed by the applicant/financial

creditor/State Bank of India for recovery of the financial

credit extended to the Corporate Debtor M/s. Brilliant

Alloys Private Limited vide order No.

CP/582/(IB)/CB/2017 dt.28.09.2017 the moratorium

under Sec. 14 of the IBC 2016 was declared and

Shri.Martin S.K.Golla was appointed as an Interim

Resolution Professionals and in the meantime the financial

creditor has sought to move this Tribunal under Section 3

60(2) of the IBC to initiate the insolvency proceedings

against the personal guarantors to the corporate debtor

with respect the guarantee for the loan which was

extended for the financial creditor vide loan agreement

dated 05.03.2012 for the following financial credit together

with applicable interest thereon.

Sl. Facility Limit No. Fund Based (Rs. in Limits lacs) a Term Loan 1275.00

b Cash Credit 1200.00

Total of Fund Based 2475.00 Limits

In similar circumstances, the Hon'ble High Court of

Allahabad has held that

IN THE HIGH COURT OF ALLAHABAD writ - C Nos. 30285 and 30033 of 2017 Decided On: 06.09.2017 Appellants: Sanjeev Shriya and Ors.

Vs. Respondent: State Bank of India and Ors. Sanjeev Shriya and Ors. Vs. State Bank of India and Ors.

(06.09.2017 - ALLHC) : MANU/UP/2243/2017

The operative portion of Hon'ble High Court's orders

are reproduced below:

4

"This Court is of the considered opinion that in the aforementioned facts and circumstances once the sufficient safeguards are provided in the IBC, 2016 & the regulations framed thereunder to the bank, and even the liability has not been crystallized either against the principal debtor or guarantors/mortgagors at present, then the proceeding, which is pending before the Debt Recovery Tribunal, Allahabad cannot go on and the same is stayed till the finalization of corporate insolvency resolution process or till the NCLT approves the resolution plan under sub-section (l) of Section 31 or passes an order for liquidation of corporate debtor under Section 33, as the case may be. With the aforesaid directions/observations, both the writ petitions are disposed"

In view of this, the financial creditor/SBI should not

proceed against the personal guarantors till the moratorium

period comes to an end or till the adjudicating authority

approves a resolution plan under Sub Section 1 of Section

31 or passes an order for liquidation of corporate debtor

under Section 33.

In terms of the above, all the five CP/703/IB/2017,

CP/704/1B/2017, CP/705/1B/2017, CP/706/1B/2017,

CP/707/1B/2017 are disposed of.

There will be no order as to costs."

2. Learned counsel appearing on behalf of the Appellant submits that

the aforesaid directions given by the Adjudicating Authority is against the

observations of this Appellate Tribunal as made in Para 13 in the "State 5

Bank of India V/s. V. Ramakrishnan & Ors.─ Company Appeal (AT)

(Insolvency) No. 213 of 2017".

3. According to learned counsel for the Respondents, the 'Moratorium'

will cover the 'Personal Guarantor' in view of the decision of this Appellate

Tribunal in "State Bank of India V/s. V. Ramakrishnan & Ors.

(Supra)" .

4. The issue fell for consideration before this Appellate Tribunal in

"State Bank of India V/s. V. Ramakrishnan & Ors. (Supra)", wherein

this Appellate Tribunal by its judgment dated 28th February, 2018

observed and held as follows:

"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- 6

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).

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 7

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;

(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.

8

(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."

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- 9

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."

10

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'."

5. The case of the Appellant and the Respondents being covered by

the aforesaid decision, no further order is required to be passed in these

appeals. However, it is made clear that order of 'Moratorium' will be

applicable only to the proceedings against the 'Corporate Debtor' and the

'Personal Guarantor', if pending before any court of law/Tribunal or

authority but the order of 'Moratorium' will not be applicable for filing

application for triggering 'Corporate Insolvency Resolution Process' under

Sections 7 or 9 or 10 of the Insolvency and Bankruptcy Code, 2016

(hereinafter referred to as "I&B Code") against the 'Guarantor' or the

'Personal Guarantor' under Section 60(2). 11

6. We have noticed that Part-III of 'I&B Code' has not been given effect

but Part-II Section 60(2) having come into force, if 'Corporate Insolvency

Resolution Process' has been initiated against the 'Corporate Debtor', the

Insolvency and Bankruptcy Resolution Process against the 'Personal

Guarantor' can be filed under section 60(2) before the same Adjudicating

Authority (National Company Law Tribunal) and not before the Debt

Recovery Tribunal (DRT).

7. All these appeals stand disposed of with aforesaid observations and

clarifications. 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) Ar/uk