Vijay Kumar Ghai Vs. Pritpal Singh Babbar
CRM-M-22685-2021 (O&M)
Facts:
(1) In the year 2008, Petitioner requested for the loan of Rs.11 Lac from the respondent for business purpose which the petitioner shall repay with interest. Respondent issued a demand draft of Rs.11 Lac in favor of the petitioner.
(2) Petitioner paid the interest of Rs.24700 every quarter and to discharge his obligation issued a cheque of Rs.11 lac on 20.12.2012 which was returned due to insufficient balance in the account.
(3) Respondent issued a legal notice 02.03.2012 under section 138 of the NIA but the petitioner having failed to pay the amount respondent filed a complaint on 21.03.2012 and summon was issued to petitioner on 28.05.2012.
(4) Meanwhile the petitioner filed application under section 94 of the code with the NCLT bench of Chandigarh on 04.02.2021. Petitioner requested the learned JMC to stay the proceedings under section 138 of the NIA since the application under section 94 of the code has been filed and moratorium under section 96 of the code would apply.
(5) Learned JMC vide order dated rejected to stay the proceeding by holding that simply because the petitioner had filed an application under Section 94 of the code that would not mean that the proceedings under Section 138 would get automatically stayed even in terms of Section 96 of the said Code, further in view of the fact that the cheque in question was issued by the petitioner in his personal capacity and was not in any manner in discharge of any corporate debt in respect of ‘his company’.
(6) Petitioner is challenging the above order
Issue:
Whether filing of an application under section 94 of the code would result in stay of proceeding of debt even if such debt is not related to discharge of any corporate debt and is related to debt in personal capacity?
Arguments:
For appellants:
(1) Counsel for the petitioners pointed to a notification issued by the Government of India in the Department of Corporate Affairs, on 15.11.2019 (copy Annexure P-15), wherein certain provisions of the IBC, including Section 2(e), the most part of Section 78, Section 79, Sections 94 to 187, as also Section 249 and certain clauses of Sections 239 and 240, were notified to have come into force, in relation to personal guarantors qua corporate debtors, with effect from 01.12.2019.
(2) Counsel submitted that once the petitioner had filed an application under Section 94 of the said Code before the AA for initiation of a personal insolvency resolution process, in December 2020, on account of having became personally insolvent, necessarily all proceedings under Section 138 of the Act of 1881 would remain stayed in terms of the Section 96(1)(b) of the Code.
(3) He further submitted that moratorium under section 101 would not apply since the application is yet to be admitted.
(4) Counsel submitted that definition of excluded debt has carved out no exclusion of proceedings under Section 138 of the Act, in any Rules or Regulations promulgated under the Code.
(5) Counsel relied upon the judgment of supreme court in the matter of lalit kumar jain vs union of India, Swiss ribbons Pvt ltd vs Union of India and ors and P.Mohanraj vs Shah brothers to support his arguments.
(6) He further submitted that “excluded debt” would include only those debts as are described in clauses (a) to (d) of Section 79; and consequently, any debt incurred even between two individuals would come within the ambit of Section 94 of the Code, resulting in an interim moratorium as prescribed in Section 96 thereof, being applicable to any complaint pending under the provisions of Section 138 of the Negotiable Instruments Act, 1881, till either admission of the petition filed by the petitioner before the adjudicating authority/NCLT, or at least upto its rejection (without admission), under Section 100 thereof.
For respondent:
(1) Counsel for the respondent submitted that application filed by the petitioner is not in his individual capacity but his capacity as a personal guarantor of the corporate debtor M/s Priknit Retails Limited, and specifically in the context of a dispute between his company (and him) on the one side, with the ICICI Bank, State Bank of India and M/s ASREC
(2) He submitted that SC in P.Mohanraj has specifically held that complaint against the erstwhile directors/persons in charge of and responsible of corporate would continue and obviously where the cheque in question issued by the petitioner herein was completely unrelated to any corporate debt between the petitioner and the respondent herein, the complaint filed by the respondent herein in terms of Section 138 of that Act, has to continue against the petitioner and cannot be stayed even in terms of Sections 96 and 101 of the Code,
(3) He submitted that even the aims and objects of the Code are only to protect corporate debtors and have nothing to do at all with regard to a debt incurred wholly in a personal capacity with an individual who is not concerned in any manner with any corporate debt (i.e. the respondent herein).
(4) He further submitted that petitioner had issued a cheque from his personal account as an individual, to repay the debt that he owed the respondent as an individual, with such debt having been incurred as a personal loan, it would not be the National Company Law Tribunal to which the petitioner should have applied for appointment of an IRP/RP and in fact he should have applied to the Debt Recovery Tribunal and consequently the application made to the NCLT in respect of his debt as a personal guarantor to a corporate personality (M/s Priknit Retails Pvt. Ltd.), would not cover any debt that he owes another individual in a purely individual capacity (and not in his capacity as a personal guarantor to a corporate person), and consequently a complaint made by one individual against another under Section 138 of the Negotiable Instruments Act, would not be affected by the application under section 94 of the code.
(5) He submitted that petitioner is taking undue advantage of the code since the compliant under section 138 of the NIA was filed in the year 2012 and evidence was concluded in the year 2015, he has filed the application after 9 years.
Decision: Hon’ble court held that filing of an application under section 94 of the code would result in stay of proceeding in terms of section 96 of the code even if such debt is not related to discharge of any corporate debt and is related to debt in personal capacity.
Rationale:
(1) Court relying o the judgments in the case of Lalit Kumar jain vs UOI and ors, SBI vs V.Ramkrishnan and ors noted that a reading of the judgment and as also from the relevant provisions of the Code shows that personal guarantors to corporate debtors are to be treated differently from other categories of individuals who would be covered by Part III of the Code, with it to be again observed that personal guarantors have however only been defined in Section 5(22) falling in Part II thereof and not in Part III.
(2) Court concurred with the arguments of petitioner counsel arguments that petitioner having sought his own insolvency under Section 94, all his debts would necessarily have to be considered by the Tribunal, that would seem to be in consonance with what has been Lalit Kumar Jains’ case.
(3) It interpreted that debt is defined in a generic meaning and debt as under the proceeding under section 138 of the NIA in the present case is not prescribed as an excluded debt under section 79
(4) Court noted that otherwise a proceeding under Section 138 of the Act, qua a debt as is wholly incurred qua an individual who is not in any manner connected to the corporate debtor that the petitioner stood a personal guarantor for, nor to the corporate debt itself, would need to proceed independently so as not to make the complainant in such proceedings under Section 138 suffer further delays, especially when in the present case he has already suffered a delay of about 10 years since his complaint was initially filed, however, in the light of the aforesaid observations as also the fact that Section 96 of the Code does not specifically carve out any exception qua such a debt as is subject matter of an instrument in the context of which a complaint under Section 138 of the Act has been filed.
(5) Court would have to interpret the terms “all the debts” and “any legal action or proceedings pending in respect of any debt” as occur in Section 96 of the Code, to mean that it would cover all such debts including any debt not pertaining to a corporate debtor for whom the accused in such a complaint under Section 138 stood as a personal guarantor to, even in his capacity as a Director of such corporate debtor.
