Sandeep Kasare Vs IL&FS Financial Services Ltd. (NCLAT Delhi)
NCLAT Delhi held that Financial Creditors can invoke the proceedings under section 7 of the Insolvency and Bankruptcy Code, 2016 against the Guarantor, who on default of Principal Borrower transforms into Corporate Debtor
Facts-
IL&FS offered to extend to Smt. Anupama Agarwal (“the Borrower”) a Rupee Term Loan facility upto Rs.30,00,00,000/-. The Offer Letter itself, while noticing the terms and conditions noticed in “Security Package”, consisting of Primary Security, mortgage by way of deposit of original title deeds over residential premises namely – Flat No.6, Gold Croft, 39, Bahulabhai Desai Road, Mumbai-26 as well as other security. A Letter of Guarantee was issued by the Corporate Debtor, guaranteeing repayment of Rs.30 crores loan in pursuance of Agreement.
The Financial Creditor issued a Demand Notice asking for overdue payment with reference to term loan of Rs.30 crores. Notice was issued both to Principal Borrower as well as Personal Guarantor and Pledgors. By notice dated 31.10.2018 sent to Principal Borrower, Corporate Debtor, Personal Guarantor and Pledgors demand for repayment of overdue sums was made by Respondent No.1.
Financial Creditor filed an Application under Section 7 of the Code dated 28.08.2019 claiming total amount of default of 36,36,16,503/-. Notice was issued in the Application and Corporate Debtor filed its reply objecting Section 7 Application. The Adjudicating Authority vide order dated 11.03.2022 admitted the Section 7 Application.
In the Appeal an interim order was passed that occupants of the flat No.6 shall not be asked to vacate the premises till 31.07.2022. The interim order was not extended after 31.07.2022. There being no interim order staying the CIRP, the Committee of Creditors (“CoC”) in its 3rd Meeting passed Resolution for liquidation of the Corporate Debtor.
Conclusion-
There is no denial to default committed in repayment of the loan. When default was committed in the repayment of the loan and debt became due on both Principal Borrower and Corporate Debtor, no error can be said to be committed by the Financial Creditor in filing Application under Section 7 against the Corporate Debtor.
The Hon’ble Supreme Court in Laxmi Pat Surana has categorically laid down that Financial Creditor can legitimately invoke the proceedings under Section 7 when Principal Borrower commits a default. It has been held that Guarantor, who is a Corporate Person, metamorphoses into Corporate Debtor, the moment Principal Borrower commits default.
FULL TEXT OF THE NCLAT DELHI JUDGMENT/ORDER
These two Appeals have been filed by the same Appellant, who is suspended Director of the Corporate Debtor M/s G.C. Property Private Limited. The Company Appeal (AT) (Insolvency) No.468 of 2022 has been filed against the order dated 11.03.2022 passed by National Company Law Tribunal, Mumbai Bench, Court III, by which order C.P. No.2312/IBC/MB/2019 filed by the Respondent IL&FS Financial Services Ltd. (“IL&FS”) has been admitted. The Company Appeal (AT) (Insolvency) No.1027 of 2022 has been filed against the order dated 06.07.2022 in the same CP(IB) – 2312/IBC/MB/2019 by which Application filed by the Resolution Professional under Section 33 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the “Code”) for passing an order of liquidation has been allowed and the Adjudicating Authority directed for liquidation of the Corporate Debtor.
2. Brief facts of the case giving rise to these two Appeals are:
(i) IL&FS vide its offer letter 27.12.2017 offered to extend to Smt. Anupama Agarwal (“the Borrower”) a Rupee Term Loan facility upto Rs.30,00,00,000/- (Rupees Thirty Crores Only). The Offer Letter itself, while noticing the terms and conditions noticed in “Security Package”, consisting of Primary Security, mortgage by way of deposit of original title deeds over residential premises namely – Flat No.6, Gold Croft, 39, Bahulabhai Desai Road, Mumbai-26 (“Flat No.6”) as well as other security. The Agreement was entered between IL&FS Financial Services Ltd. and the Principal Borrower dated 29.12.2017 by which Financial Facility of Rupee Term Loan of Rs.300 million (Rs.30 crores) was extended under the terms and conditions mentioned therein. On 29.12.2017 a Letter of Guarantee was issued by the Corporate Debtor, guaranteeing repayment of Rs.30 crores loan in pursuance of Agreement dated 29.12.2017. On 29.12.2017 on behalf of the Corporate Debtor title deed of residential property of Flat No.6 as noted above was deposited with the lender. The Corporate Debtor, i.e., M/s G.C. Property Private Limited also got Charge registered with the Registrar of Companies, Mumbai under Section 77(1) and 78 of the Companies Act, 2013 between the Corporate Debtor and IL&FS Financial Services Ltd. with reference to creation of charge dated 29.12.2017.
(ii) The Financial Creditor issued a Demand Notice dated 30.07.2018 asking for overdue payment with reference to term loan of Rs.30 crores. Notice dated 30.07.2018 was issued both to Principal Borrower as well as Personal Guarantor and Pledgors. By notice dated 31.10.2018 sent to Principal Borrower, Corporate Debtor, Personal Guarantor and Pledgors demand for repayment of overdue sums was made by Respondent No.1.
(iii) Respondent No.1-Financial Creditor filed an Application under Section 7 of the Code dated 28.08.2019 claiming total amount of default of 36,36,16,503/-. Notice was issued in the Application and Corporate Debtor filed its reply objecting Section 7 Application.
(iv) The Adjudicating Authority vide order dated 11.03.2022 admitted the Section 7 Application.
3. In the Appeal an interim order was passed that occupants of the flat No.6 shall not be asked to vacate the premises till 31.07.2022. The interim order was not extended after 31.07.2022. There being no interim order staying the CIRP, the Committee of Creditors (“CoC”) in its 3rd Meeting passed Resolution for liquidation of the Corporate Debtor. In pursuance of the Resolution of the CoC, an IA No.1557 of 2022 was filed by the Resolution Professional, which was allowed vide order dated 06.07.2022 by the Adjudicating Authority directing the liquidation of the Corporate Debtor – M/s G.C. Property Private Limited.
4. Shri Abhijeet Sinha, learned Counsel for the Appellant challenging the order dated 11.03.2022 admitting Section 7 Application, raised following submissions:
(i) That letter of Guarantee dated 29.12.2017 issued by the Corporate Debtor and relied by IL&FS is not a valid document in the eye of law. It is submitted that learned Adjudicating Authority failed to consider that the document is insufficiently stamped and cannot be received in evidence or acted upon. The Tribunal has erred in relying upon the Letter of Guarantee dated 29.12.2017 to establish the debt against the Corporate Debtor and an unstamped Letter of Guarantee could not have been relied upon for any purpose whatsoever.
(ii) The Respondent No.1 does not come within the meaning of Financial Creditor as defined under Section 5(7) read with Section 5(8) and 5(5A) of the Code. The Corporate Debtor who is alleged as Guarantor does not fall within the definition of Corporate Debtor. Borrower being individual is not a ‘Corporate Person’, hence, Corporate Debtor by no stretch of imagination can fall within the meaning of ‘Corporate Debtor’.
(iii) Loan transaction between the Borrower and IL&FS is a Circular Loan Transaction, since Borrower immediately on the same day after receiving the disbursement has transferred the loan amount to M/s Vadraj Cement Ltd. The loan transaction between Borrower and Respondent No.1 was only to facilitate payment to M/s Vadraj Cement Ltd. Challenging the order dated 06.07.2022, the Counsel for the Appellant submits that Resolution for liquidation of the Corporate Debtor has been passed hastily only with the intent to liquidate the only residential property of the Corporate Debtor, i.e., Flat No.6 as noted above. The Code is not a Forum for recovery proceedings and the order of liquidation has been passed only to recover dues. A solvent company has been put into liquidation. Also when Appeal No.468 of 2022 filed by the Appellant challenging the admission of Section 7 Application was pending consideration, Resolution for liquidation ought not to have been passed.
5. The learned Counsel appearing for Respondent (IL&FS) refuting the submissions of learned Counsel for the Appellant submitted that the Letter of Guarantee executed by the Corporate Debtor in favour of IL&FS is in capacity as Corporate Guarantor. The facts of the present case are fully covered by the judgment of the Hon’ble Supreme Court in Laxmi Pat Surana vs. Union Bank of India and Another – (2021) SccOnLine SC 267. The submission of the Appellant that Guarantee Agreement is unstamped is incorrect. The document indicate that the Guarantee Agreement comprises of E-stamp certificate, which makes it evidently clear that requisite stamp duty has been paid at the time of signing of execution of the Guarantee Agreement. Further, even if it is assumed that an insufficient stamped duty is paid on the Agreement, the same is not bar to admitting Section 7 Application. Relying on the judgment of this Tribunal in Koncentric Investment vs. Standard Chartered Bank London – Company Appeal (AT) (Insolvency) No. 911 of 2021, it is submitted that even if Facility Document is not stamped, other materials on record could be relied on for finding debt and default. The mere fact that Principal Borrower has further transferred the amount to M/s Vadraj Cement Ltd. in no manner diminishes the liability of the Corporate Debtor to make the payment of debt. The IL&FS is not a party to the Agreement between the Borrower and M/s Vadraj Cement Ltd., hence, the same has no bearing on the liability of the Borrower and the Corporate Debtor under the Loan Agreement/ Guarantee Agreement.
6. We have considered the submissions of learned Counsel for the parties and have perused the record.
7. Before we proceed to consider the respective submissions of the parties, we need to first notice certain terms and conditions of the Offer Letter as well as the Agreement entered between the Borrower and ILFS, as well as other relevant materials pertaining to the impugned property owned by the Corporate Debtor, i.e., Flat No.6. The Offer Letter dated 27.12.2017 has been part of the reply filed by the Appellant, which was issued by IL&FS to Principal Borrower in reference to Term Loan Facility of up to Rs.300 million to Smt. Anupama Agarwal. The Security Package as referred to at Sl. No.13 under heading ‘Principal terms and conditions to Offer Letter’ is as follows:
