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NCLT Kochi allows initiation of the Insolvency Resolution Process against the Personal Guarantor


An application was filed before the National Company Law appellate tribunal (NCLT), Kochi bench comprising Judicial Member Ashok Kumar Borah and the technical member Shyam Babu Gautam to initiate the insolvency resolution process against the Personal Guarantor of the Corporate Debtors under section 95(1) of IBC.


Brief Facts Applicant Bank sanctioned a credit facility on 14.01.2010 based on the acceptance of the conditions of the said sanction by the Corporate Debtor and guarantors including respondent herein, the applicant entered into a Term Loan Agreement with the Corporate Debtor. As security towards the said facility, Respondent Guarantor executed a deed of guarantee for the overall limit in favour of SBI on 14.01.2010.


It was also stated that based on a further request from the Corporate Debtor, the applicant agreed to revalidate the term loan by increasing the limit by further Rupees 20 Crores on 24.02.2010 on the condition that the Corporate Debtor shall give paripassu the first charge on the fixed assets and directors including the respondent herein shall execute personal guarantees. This additional facility was granted considering the Rupees 26 Crores net worth of the guarantors. Followed by the sanction, a supplemental agreement for loan increasing the Term Loan from Rs.67,64,050/- to Rs. 20,67,64,050/- was made on 27.03.2010 and respondent herein jointly with other director Mr. E.M Najeeb has executed a supplementary deed of guarantee for modifying the guarantee from Rs.67,64,050 to Rs. 20,67,64,050/- in favour of Applicant.


It was also stated that the applicant sanctioned another credit facility of Rupees 20 Crores to the Corporate Debtor on 20.05.2010 which also includes the personal guarantee of the respondent among other securities including paripassu first charge in the fixed assets and guarantee of other directors. Pursuant to the acceptance of the said sanction letter by the Corporate Debtor and directors, the applicant (formerly SBT) has entered into a term loan agreement with the Corporate Debtor on 09.06.2010. The respondent herein has executed a Deed of Guarantee in favour of SBT on 09.06.2010 agreeing to guarantee the repayment of the said credit facilities. The SBT further sanctioned a term loan of Rupees.8 Crores on 09.02.2015. For this also the Corporate Debtor has executed a separate Term Loan agreement on 20.02.2015 and the Respondent has executed a deed of guarantee in favour of SBT towards the said additional facility of Rupees 8 Crores.


The Corporate Debtor and the guarantors including Respondent herein have jointly executed a revival letter on 16.03.2013 and 10.03.2016 in favour of the applicant acknowledging the execution of all loan documents and guarantee agreements for the overall limit of Rs.20,67,64,050/-. Similarly, the revival letters were also executed in favour of SBT on 30.03.2013 and 04.02.2016. In view of the default committed by the Corporate Debtor in the repayment of credit facilities, the accounts of the Corporate Debtor were declared as NPA on 28.06.2017, 29.06.2017 and on 24.07.2017. The applicant has issued notice to the Corporate Debtor and Guarantors for repayment/regularization of the account. However, the Corporate Debtor requested for additional facilities for completing the project and regularizing the account, to which the Creditor/Applicant did not agree. Since the Corporate Debtor failed to repay the debt, the Applicant jointly with other banks have issued a notice under Section 13(2) of the SARFAESI Act on 29.12.2017 to repay the due of applicant Rs.53,01,79, 190/- within 60 days. The Creditor has also issued a notice under Section 13(2) of the SARFAESI Act to the respondent by invoking personal guarantees. The Creditor has taken possession of the secured asset on 15.05.2018. The Creditor jointly with other lenders has also filed OA.417 of 2018 on 24.07.2018 before the Debts Recovery Tribunal for recovery of the due from the Corporate Debtor and the Personal Guarantors including the respondent herein, which is pending consideration. On 30.09.2019, based on the request of the Corporate Debtor, the Creditor granted an OTS Scheme for Rs.38,14,49,303/-. However, the Corporate Debtor failed to comply with the OTS Scheme and hence OTS could not be materialized. The outstanding dues of the Corporate Debtor as on 15.10.2020 is Rupees 72,63,09,421. Due to non-payment of this amount the Applicant has filed this application for initiation of the Insolvency Resolution Process against the Guarantor under Section 95(1) of I&B Code,2016. The applicant stated that they have issued demand notice to the Respondent on 17.11.2020 under Rule 7(1) of the Personal Guarantors Insolvency Rules, 2019. The demand notice was delivered to the Respondent on 21.11.2020, to which he has replied vide letter dated 30.11.2010, refusing to make any payment towards the debt stating the reason that he has not executed any loan documents and deed of guarantees and all the signatures in the documents executed were forged one. However, this submission was refuted by the Applicant stating that the respondent availed the credit facilities from SB1, SBT, Union Bank of India and Dhanlaxmi Bank being the Director of the Corporate Debtor and the Respondent’s submission that the documents are forged cannot be accepted. The Applicant Bank invoked the personal guarantee of the respondent on 29.12.2017.


Grounds of admitting Application against the Personal Guarantor


On presentation of the application by the Applicant/Financial Creditor, the Tribunal vide order dated 06th October 2021 appointed Mr. Kizhakkekara Kuriakose Jose, as Resolution Professional directing him to file a report under Section 99 of Insolvency and Bankruptcy Code, 2016. The Resolution Professional had filed the report recommending the admission of the application filed under Section 95 of IBC, 2016 on the following grounds:


(1) Debt owed by M/s Green Gateway Leisure Ltd to the applicant State Bank of India is Rs.72,63,09,421/- as evidenced by the certified copy of the account statement. Mr Sahadulla M.I. had extended personal guarantee as evidenced by the deed of guarantees submitted along with the application. The applicant has invoked the personal guarantee against Mr Sahadulla M.I. by issuing notice under Section 13(2) of the SARFAESI Act on 29.12.2017 directing him to pay the amount within 60 days from the notice. However, the personal guarantor failed to repay the amount in default within 60 days from the issue of the demand notice. Hence the debt owed by Mr Sahadulla M.I. to the applicant is Rs 72,63,09,421/- This amount is not disputed by the Corporate Debtor M/s. Green Gateway Leisure Ltd. or by the guarantor Mr. Sahadulla M.I. and hence the requirement under Section 95(4)(a) is satisfied.


(2) Demand notice dated 17.11.2020 issued under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process of Personal Guarantors to Corporate debtors) Rules 2019 was delivered on 21.11.2020 as evidenced by India Postal Track Consignment report annexed to the application. Sahadulla M.I. had filed a reply dated 30.11.2020 through a counsel disputing the liability stating various reasons in the reply. No repayment has been made within fourteen days of receipt of notice satisfying the requirement of Section 95(4)(b).


(3) The applicant State Bank of India has provided a copy of the Account Statement of the Corporate Debtor M/s. Green Gateway Leisure Ltd. with a certificate issued under the Banker Book of Evidence Act. It is also confirmed by the State Bank of India that no further payment was received either from M/s. Green Gateway Leisure Ltd. or from Mr. Sahadulla M.I., thus, meeting the requirement set out in 95(4)(c).


Submission by the respondent/Personal guarantor


The Respondent/ Guarantor filed a counter/reply statement and stated that the Resolution Professional simply narrated about the transactions in between the Creditor and the Corporate Debtor incorporating the copies of the statement of accounts of the transaction in between the Creditor and Corporate Debtor and has recorded his findings which are totally erroneous with respect to this Respondent who is only a Personal Guarantor. It is stated that Section 99 itself is incorporated with the noble intention to protect and safeguard the interests of the personal guarantors by affording them an opportunity, which includes whether or not he/they can be proceeded against in the status of the personal guarantor. Such an opportunity was totally denied to him and the Resolution Professional was simply seeking proof of discharge.


It is also stated that the respondent was all along seeking the production of the deed of guarantees before this Tribunal for getting expert opinion regarding the forgery and have even gone to the extent of filing IA(IBC) 49/KOB/2021, but the Resolution Professional in his report stated that he had gone through the deed of guarantees executed by the Respondent which were produced along with the application.


It is further stated that the Respondent/Personal Guarantor had disputed the execution of documents making him liable as a personal guarantor, from 26.02.2018 onwards and the documents produced by the Respondent/Personal Guarantor will make it clear that there is a pending dispute with respect to the execution of documents before the Debts Recovery Tribunal from 2019 onwards, by filing reply to IA No. 1405/2019 before DRT seeking production of original records by the creditor for sending the same for expert opinion.


It is also stated that there is no resolution process live/pending against the Corporate Debtor in any of the National Company Law Tribunals/High Courts. The applicant herein has spared the Corporate Debtor and is proceeding against the Respondent with an ulterior motive picturizing him as a personal guarantor, which is impermissible under law. This major anomaly is being suppressed from the judicial vicinity by the Resolution Professional.


The NCLT were of the considered opinion that this was a fit case for admission and proceeded against the Personal Guarantor/ Respondent and initiate the Corporate Insolvency Resolution Process. It was also seen from the report of Resolution Professional that he had not recommended negotiation between the parties for arriving at an amicable settlement for repayment. Hence, the NCLT admitted the case filed under the provisions of Section 95 of IBC, 2016 under section 100 of the IBC, 2016 and initiated Insolvency Resolution Process against the Respondent/Personal Guarantor.


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