Axis Trustee Services Limited vs Brij Bhushan Singal & Anr.
CS(COMM) 8/2021 & I.A. 10333/2021
Facts:
1.Facility Agreement dated was executed between Bhushan Steel and various financial creditors and plaintiff was appointed as the security agent vide Security Agent Agreement dated 18th May, 2011 to look after the beneficial interest of the lenders. The repayment obligations of Bhushan Steel were secured by way of a personal guarantee given jointly by the defendants.
2.Bhushan Steel defaulted in repayment of the principal installments under the Facility Agreement as also on the payment of interest. Upon default, personal guarantee was invoked by the plaintiff acting in his capacity as a security agent vide Invocation Notice dated 8th November, 2017. CIRP was initiated against Bhushan steel and claim of plaintiff was admitted which was of EUR 156,929,177.43 and provided with the amount of EUR 92,178,068.70 in the plan.
3.Clause 8.7.3(vi) of the approved Resolution Plan, Financial Creditors of Bhushan Steel were given right to recover any unresolved financial debt, owed by the borrower, from the guarantors in terms of the personal guarantee issued by them. Demand Notice dated 20th October, 2020, the financial creditors demanded payment of EUR 64,751,108.73/- from defendant of which no reply was given.
4.Meanwhile insolvency proceeding was initiated against the defendant 2 and defendant 2.
Issue: whether the present suits can proceed against the defendants in view of applications having been filed under Section 95 of the IBC against both the defendants?
Arguments:
For Plaintiff:
1.It was submitted that insolvency resolution process and bankruptcy for individuals is governed under Part III of the IBC. In terms of Sections 78 and 79, the adjudicating authority for personal insolvency matter is the DRT and not the NCLT. Therefore, the defendants cannot claim any moratorium on the basis of an application filed under Section 95 before the NCLT, which has no jurisdiction to entertain the same
2.Section 60 only contemplates a situation where the CIRP in respect of the corporate debtor is pending. Otherwise, for the purposes of Part III of the IBC, the DRT alone is the adjudicating authority vested with the power to deal with an application under Section 95 of the IBC. In view of the fact that the CIRP in respect of the corporate debtor, Bhushan Steel stands concluded, the insolvency proceedings against the defendants could not have been filed before the NCLT.
3.It was further submitted that the effect of the interim moratorium under Section 96 of the IBC would apply against all debts of a particular individual and not of any other person or a co-guarantor. Under the Personal Guarantee dated 19th May, 2011, both the defendants no.1 and 2 are jointly and severally liable towards the plaintiff. Legal incapacity of the defendant no.2 cannot impact the remedies against the other guarantor.
4.The effect of a moratorium has to be assessed by the court and the court cannot take a blinkered approach.
For Defendants:
1.It was submitted by the counsel that Insolvency proceedings were initiated against the defendant no.2 by L&T Finance Limited before the NCLT, Delhi on 4th March, 2020 and therefore, in light of Section 96 of the IBC, the interim moratorium would come into effect and the present suits would not be maintainable against the defendant no.2.
2.Moratorium under Section 96 of the IBC is „debt centric‟. Therefore, it would be applicable to both the defendants no.1 and 2, who are co-guarantors, as the debt is common to both of them and is not separable. Even if the date, when the insolvency application against the defendant no.1 was registered i.e. 3rd October, 2022, is considered, the present suits still cannot proceed any further as the judgment was yet to be pronounced on the said date and the suits were pending
Decision: The present suits cannot proceed against the defendants in view of applications having been filed under Section 95 of the IBC against both the defendants.
Rationale:
1.Hon’ble Court noted that Section 179(1), which provides the jurisdiction for the DRT with respect to insolvency matters of individuals and firms, is subject to Section 60 of the IBC. Sub-section (1) of Section 60 of the IBC provides that in relation to insolvency resolution for corporate persons, including corporate debtors and personal guarantors, the Adjudicating Authority shall be the NCLT
2.It also noted that sub-section (2) of Section 60 is supplemental to sub-section (1) of Section 60 and has to be read along with sub-section (1) of Section 60. A harmonious reading of the aforesaid provisions would lead to the conclusion that sub-section (1) of Section 60 applies in respect of insolvency proceedings in respect of personal guarantors of corporate debtors irrespective of the fact whether CIRP is pending against the corporate debtor.
3.The NCLT would be the appropriate adjudicating authority in respect of insolvency proceedings initiated against the defendants in their capacity as personal guarantors for the corporate debtor, Bhushan Steel. Insolvency proceedings against the defendant no.2 under Section 95 of the IBC were initiated before the NCLT on 4thMarch, 2020, before filing of the present suits and in view thereof, the interim moratorium under Section 96 would be operable insofar as the defendant no.2 is concerned.
4.It held that A reading of Section 96 of the IBC makes it clear that the relevant date for the interim moratorium to come into effect is the date ―when an application is filed under Section 94/95‖. When the legislature has specifically used the word ―filed‖ in respect of an application under Section 94/95, the court cannot read the same to mean the date when the application is “registered”, as is sought to be contended on behalf of the plaintiffs.
5.The application against the defendant no.1 has been filed under Section 95 of the IBC by State Bank of India on 28th May, 2022, as a creditor of the corporate debtor/borrower for whom the defendant no.1 stood as a guarantor. Therefore, relevant date on which the interim moratorium under Section 96 would kick in would be 28th May, 2022.
6.The interim moratorium under Section 96 of the IBC kicks in as soon as an application is filed under Section 94/95 of the IBC and the effect of such interim moratorium is that all pending legal proceedings are deemed to have been stayed. This is in contrast to the moratorium under Section 14 of the IBC, whereby the moratorium comes into effect only upon an order being passed by the NCLT declaring a moratorium.
7.The language of Section 96(1) of the IBC cannot be stretched so as to include all co-guarantors within the ambit of the interim moratorium. The reference to „all the debts‟ in Section 96(1)(a) has to be in respect of all debts of a particular debtor. This is clear from the language used in Section 96(1)(b)(ii) to the effect that ‗the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt.‘
Order Copy:
