Tuf Metallurgical Pvt. Limited vs Wadhwa Glass Processors Pvt. Ltd

IN THE MATTER OF: TUF Metallurgical Pvt. Ltd. ...Appellant

Versus Wadhwa Glass Processors Pvt. Ltd. ...Respondent

Present: For Appellant: Mr. Vaibhav Mahajan, Advocate For Respondent: Mr. Debopriyo Moulik, Advocate

ORDER

(VIRTUAL MODE) (ORAL)

(Per: Justice Rakesh Kumar Jain)

21.07.2022: This appeal has arisen from the order dated 27.03.2019

passed by the Adjudicating Authority (National Company Law Tribunal, New

Delhi, Principal Bench) by which an application filed by the Appellant under

Section 7 of the Insolvency and Bankruptcy Code, 2016 (in short 'Code') was

dismissed on the ground that it has been filed against the Principal

Borrower as well as Corporate Guarantor on the analogy that the CIRP

proceeding has already been initiated.

Counsel for the Appellant has submitted that in the case of Dr.

Vishnu Kumar Agarwal Vs. M/s. Piramal Enterprises Ltd., CA (AT) (Ins) No.

347 of 2018 decided on 08.01.2019 by this Appellate Tribunal it was held

that:

"32. There is no bar in the 'I&B Code' for filing simultaneously two applications under Section 7 against the 'Principal Borrower' as well as the 'Corporate Guarantor(s)' or against both the 'Guarantors'. However, once for same set of claim application under Section 7 filed by the 'Financial Creditor' is admitted against one of the 'Corporate Debtor' ('Principal Borrower' or 'Corporate Guarantor(s)'), second application by the same 'Financial Creditor' for same set of claim and default cannot be admitted against the other 'Corporate Debtor' (the 'Corporate Guarantor(s)' or the 'Principal Borrower'). Further, though there is a provision to file joint application under Section 7 by the 'Financial Creditors', no application can be filed by the 'Financial Creditor' against two or more 'Corporate Debtors' on the ground of joint liability ('Principal Borrower' and one 'Corporate Guarantor', or 'Principal Borrower' or two 'Corporate Guarantors' or one 'Corporate Guarantor' and other 'Corporate Guarantor'), till it is shown that the 'Corporate Debtors' combinedly are joint venture company."

It is submitted that an amendment was brought in Section 60 (2) of

the Code by Act of 26 of 2018 w.e.f. 06.06.2018 and after the amendment

Section 60(2) read as under:

"60(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 [liquidation or bankruptcy of a corporate guarantor or personal guarantor, as the case may be, of such corporate debtor] shall be filed before such National Company Law Tribunal."

It is further submitted that the decision in the case of Dr. Vishnu

Kumar Agarwal (Supra) has been held as not laying down the correct law by

this Appellate Tribunal in the case of State Bank of India Vs. Athena Energy

Ventures Pvt. Ltd., CA (AT) (Ins) No. 633 of 2020 decided on 24.11.2020 in

which the following observation has been made as under:

"19. It is clear that in the matter of guarantee, CIRP can proceed against Principal Borrower as well as Guarantor. The law as laid down by the Hon'ble High Courts for the respective jurisdictions, and law as laid down by the Hon'ble Supreme Court for the whole country is binding. In the matter of Piramal, the Bench of this Appellate Tribunal "interpreted" the law. Ordinarily, we would respect and adopt the interpretation but for the reasons discussed above, we are unable to interpret the law in the manner it was interpreted in the matter of Piramal. For such reasons, we are unable to uphold the Judgement as passed by the Adjudicating Authority"

It is further argued that the Hon'ble Supreme Court, in the case of

Lalit Kumar Jain Vs. Union of India & Ors. in Transferred Case (Civil) No.

245 of 2020, has categorially observed that the proceedings against the

Principal Borrower and Corporate Guarantor can be simultaneously initiated

before the NCLT which are reproduced as under:-

"83. The amendment of 2018 also altered Section 60 in that insolvency and bankruptcy processes relating to liquidation and bankruptcy in respect of three categories, i.e. corporate debtors, corporate guarantors of corporate debtors and personal guarantors to corporate debtors were to be considered by the same forum, i.e. NCLT.

92. As noticed earlier, Section 60 had previously, under the original Code, designated the NCLT as the adjudicating authority in relation to two categories: corporate debtors and personal guarantors to corporate debtors. The 2018 amendment added another category: corporate guarantors to corporate debtors. The amendment seen in the background of the report, as indeed the scheme of the Code (i.e., Section 2 (e), Section 5 (22), Section 29A, and Section 60), clearly show that all matters that were likely to impact, or have a bearing on a corporate debtor's insolvency process, were sought to be clubbed together and brought before the same forum. Section 5 (22) which is found in Part II (insolvency process provisions in respect of corporate debtors) as it was originally, defined personal guarantor to say that it" means an individual who is the surety in a contract of guarantee to a corporate debtor."

95. The impugned notification authorises the Central Government and the Board to frame rules and regulations on how to allow the pending actions against a personal guarantor to a corporate debtor before the Adjudicating Authority. The intent of the notification, facially, is to allow for pending proceedings to be adjudicated in terms of the Code. Section 243, which provides for the repeal of the personal insolvency laws has not as yet been notified. Section 60(2) prescribes that in the event of an ongoing resolution process or liquidation process against a corporate debtor, an application for resolution process or bankruptcy of the personal guarantor to the corporate debtor shall be filed with the concerned NCLT seized of the resolution process or liquidation. Therefore, the Adjudicating Authority for personal guarantors will be the NCLT, if a parallel resolution process or liquidation process is pending in respect of a corporate debtor for whom the guarantee is given. The same logic prevails, under Section 60(3), when any insolvency or bankruptcy proceeding pending against the personal guarantor in a court or tribunal and a resolution process or liquidation is initiated against the corporate debtor. Thus if A, an individual is the subject of a resolution process before the DRT and he has furnished a personal guarantee for a debt owed by a company B, in the event a resolution process is initiated against B in an NCLT, the provision results in transferring the proceedings going on against A in the DRT to NCLT.

111. In view of the above discussion, it is held that approval of a resolution plan does not ipso facto discharge a personal guarantor (of a corporate debtor) of her or his liabilities under the contract of guarantee. As held by this court, the release or discharge of a principal borrower from the debt owed by it to its creditor, by an involuntary process, i.e. by operation of law, or due to liquidation or insolvency proceeding, does not absolve the surety/guarantor of his or her liability, which arises out of an independent contract."

It is, thus, submitted that the Appellant has filed an application under

Section 7 of the Code against the Corporate Debtor and thereafter another

application filed under Section 7 of the Code against the Corporate

Guarantor bearing CP (IB) 356/PB/2019, but the subsequent application

has been dismissed by the impugned order dated 27.03.2019 whereas in the

application filed against the Principal Debtor CIRP was initiated and

resolution plan has been approved by the CoC.

According to Counsel for the Appellant the issue is thus as to whether

an application filed against the Corporate Debtor and also Corporate

Guarantor be tried together by the NCLT in view of Section 60(2) of the

Code?

While opposing this appeal, Counsel for the Respondent has

vehemently argued that the decision in the case of Dr. Vishnu Kumar

Agarwal (Supra) has not yet attained finality as the same is under

consideration before the Hon'ble Supreme Court in an appeal, but he could

not deny the fact that there has been an amendment in the year 2018 in

Section 60(2) on the basis of which the NCLT has been conferred the

jurisdiction to try the application filed not only against the Principal

Borrower but also the Corporate Guarantor simultaneously.

Since the issue which is to be answered is no more res-integra in view

of the decisions in the case of State Bank of India (Supra) and Lalit Kr. Jain

(Supra) much less the amendment in Section 60(2) of the Code, we are of the

considered opinion that the decision rendered by the Adjudicating Authority

is patently illegal and deserves to be set aside.

In view of the aforesaid discussion, the present appeal is hereby

allowed and the impugned order is set aside. The matter is remanded back

to the Adjudicating Authority to take a decision on the application bearing

CP (IB) 356/PB/2019 filed by the Appellant under Section 7 of the Code

against the Corporate Guarantor in accordance with law.

The parties are directed to appear before the Adjudicating Authority on

10th August, 2022.

The registry is directed to send a copy of this order to the concerned

Adjudicating Authority forthwith for compliance.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Kanthi Narahari] Member (Technical)

[Dr. Alok Srivastava] Member (Technical)

Sheetal/RR