A FINANCIAL CREDITOR CANNOT INITIATE ACTION UNDER SARFAESI Act, 2002 WHEN A MOROTORIUM WAS ISSUED AGAINST A CORPORATE GUARANTOR UNDER SECTION 14 OF IBC Code 2016.

A FINANCIAL CREDITOR CANNOT INITIATE ACTION UNDER SARFAESI Act, 2002 WHEN A MOROTORIUM WAS ISSUED AGAINST A CORPORATE GUARANTOR UNDER SECTION 14 OF IBC Code 2016.

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, CHENNAI HELD IN

STATE BANK OF INDIA

Vs.

M/s. VEESONS ENERGY SYSTEMS PVT. LTD

FACTS OF THE CASE

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”).

ACTION AGAINST PERSONAL GUARANTOR BY 

STATE BANK OF INDIA- FINANCIAL CREDITOR

 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.

INITIATION OF CIRP UNDDER SECTION 10 OF THE ‘

I&B CODE’ 2O16 BY CORPORATE DEBTOR.

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.

SECTION 140 OF THE INDIAN CONTRACT ACT

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.

WHETHER MORATORIUM IS APPLICABLE TO 

PERSONAL GUARANTEE?

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 subsection (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’.

DECISION

NCLAT held that 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.

APPLICABILITY OF MORATORIUM TO GUARANTOR

In view of the aforesaid provisions, NCLAT , Chennai that the ‘Moratorium’ will not only be applicable to the property of the ‘Corporate Debtor’ but also on the ‘Personal Guarantor’.

A Winding Up Petition Pending in a Court cannot act as a deterrent to initiate CIRP under IBC Code 2016- Held Bombay High Court

A Winding Up Petition Pending in a Court cannot act as a deterrent to initiate CIRP under IBC Code 2016- Held  Bombay High Court

JOTUN PRIVATE LIMITED VS PSL LIMITED

In this case, Mumbai High Court held that  Application under the Insolvency and Bankruptcy Code, 2016 (IBC) may be made even in cases where a Winding-Up petition has been admitted by a Company Court. Such an Application under the IBC, would not be permitted, only in the event that a final order of Winding-Up is passed under Section 481 of the Companies Act, 1956.

WINDING UP PETITION UNDER COMPANIES ACT

Prior to the enactment of the IBC, Jotun India Pvt Ltd. (Jotun), an Operational Creditor, had on 10 March 2015 filed a Company Petition under Sections 433 and 434 of the Companies Act, 1956, claiming an outstanding sum of Rs. 7.25 crore with interest in respect of unpaid invoices for goods supplied, and thereby sought a Winding-Up of PSL. This Company Petition was admitted on 9 March 2017. However, an Official Liquidator wasn’t appointed since all assets were secured and the Court said it would appoint one at a later stage if the need arose.

APPLICATION TO BIFR

On 19th June 2015, during the pendency of the Winding-Up however, PSL had made a reference to BIFR   under   Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). Upon enactment of the IBC, SICA was repealed and all matters pending before the BIFR stood abated. However, liberty was granted to applicant companies, to file cases afresh under the IBC.

APPLICATION UNDER IBC 2016

Accordingly, PSL filed an application before NCLT, Ahmedabad under section 10 of IBC, i.e., seeking the initiation of the Corporate Insolvency Resolution Process on itself, within the prescribed window of 180 days on 29 March 2017.

This Section 10 Application, was reserved for orders on 18th July 2017. The NCLT directed the same to be listed on 20th July, 2017.

COMPANY APPLICATION BY OPERATIONAL CREDITOR

On the same day i.e. 18 July, Jotun was quick to file a Company Application in the Bombay High Court seeking the appointment of a Provisional Liquidator. After hearing the counsels, a single Judge of the Bombay High Court (Gadkari, J.) passed an order restraining NCLT, Ahmedabad, from continuing with IBC Application filed by PSL. It is this Order that was sought to be recalled in the present case.

IN ITS JUDGMENT, THE MUMBAI HIGH COURT HELD

“winding up petitions retained by the High Court are being decided under the Companies Act, 1956 only as a transitional provision. Furthermore, this transitional provision cannot in any way affect the remedies available to a person under IBC vis-­à-­vis the company against whom a petition is filed and retained in the High Court, as the same would amount to treating IBC as if it did not exist on the statute book and would deprive persons of the benefit of the new legislation. But even in such a case, there is no express or implied bar from other creditors of such company or the corporate debtor from filing fresh proceedings under IBC.”

This verdict again corroborates the supremacy of the IBC 2016 .

IBBI AMENDS REGULATIONS FOR INSOLVENCY RESOLUTION PROCESS

IBBI AMENDS REGULATIONS FOR INSOLVENCY RESOLUTION PROCESS

FAIR VALUE AND LIQUIDATION VALUE

Insolvency resolution professionals will now be required to assess the fair value and liquidation value of the entity undergoing insolvency proceedings, with the latest set of amendments to the regulations.

The Insolvency and Bankruptcy Board of India (IBBI) has amended the norms pertaining to insolvency resolution process for corporate persons.

RESOLUTION PLAN

Under the revised framework, the resolution plan -- approved by the committee of creditors -- should be submitted to the adjudicating authority "at least 15 days before the expiry of the maximum period permitted for the completion of the corporate insolvency resolution process".

An official release today said the norms have been amended wherein the resolution professional should appoint two registered Valuers to determine the fair value and the liquidation value of the corporate debtor.

COMMITTEE OF CREDITORS

"After the receipt of resolution plans, the resolution professional shall provide the fair value and the liquidation value to each member of the committee of creditors in electronic form, on receiving a confidentiality undertaking," it said.

"It would help in better price discovery for assets of corporate debtor in the process of insolvency resolution,".

INFORMATION MEMORANDUM

According to the release, the resolution professional should submit the information memorandum in electronic form to each member of the committee of creditors within two weeks of appointment.

Once an invitation, including the evaluation matrix, is issued to a prospective resolution applicant, the latter would have a minimum of 30 days to submit the resolution plan.

The resolution applicant would continue to specify the sources of funds that would be used to pay insolvency resolution process costs, liquidation value due to operational creditors and liquidation value due to dissenting financial creditors, the release said.

However, the committee of creditors would specify the amounts payable from resources under the resolution plan for these purposes, it added.

"A resolution plan shall provide for the measures, as may be necessary, for insolvency resolution of the corporate debtor for maximisation of value of its assets.

"These may include reduction in the amount payable to the creditors, extension of a maturity date or a change in interest rate or other terms of a debt due from the corporate debtor, change in portfolio of goods or services produced or rendered by the corporate debtor and change in technology used by the corporate debtor," the release said.

"As liquidation value resulted in the estimated realizable value based on the piecemeal sale of assets if the corporate debtor were to be liquidated on the insolvency commencement date, it often resulted in a base value of the Assets of the corporate debtor,"

The fair value is to be arrived on going concern premise and is under a willing buyer willing seller concept.