Case Title:
Amit Jain Vs Siemens Financial Services Pvt Ltd.
Date of Order:
August 23, 2022
Bench:
Ashok Bhushan
M Satyanarayan Murthy
Barun Mitra
Parties
Appellant- Amit Jain
Respondent- Siemens Financial Services Pvt Ltd.
SUBJECT
The appeal was against an order dated 3.02.2022 passed by the National Company Law Tribunal in an application under Section 95 of the Insolvency & Bankruptcy Code, 2016 filed by the Respondent against the Appellant. The order was to initiate an interim moratorium under Section96 of the I&B Code of which the appellant had received notice. The Court dismissed the appeal stating that protection against the insolvency process was only provided for the Corporate Debtor and not the Personal Guarantor.
IMPORTANT PROVISIONS
- Section 10, Insolvency &Bankruptcy Code,2016- This Section is regarding the filing of an application by a corporate applicant with an Adjudicating Authority, towards corporate insolvency, when a corporate debtor has committed default. It contains information regarding the particulars to be filled in such application form, and the necessary documents to be furnished along with the form. It also contains procedures to be followed by the Adjudicating Authority within the specified timeframe.
- Section 95, Insolvency &Bankruptcy Code, 2016- This Section contains the procedures to be followed by a creditor while applying for initiation of the insolvency process.
OVERVIEW
- The Respondent- Financial Creditor had sanctioned a loan cum hypothecation of Rs.1,59,00,000 and Rs. 71,00,000 respectively to CMI Ltd, who is the Corporate Debtor/ Principal Borrower. The Appellant stood as Personal Guarantor to the said transaction. Two Master Finance Agreements dated 13.02.2020 were executed by and between the Corporate Debtor, the Appellant - Personal Guarantor, and the Respondent - Financial Creditor. The EMI payment was defaulted by the Corporate Debtor in 2020.
- A Company Petition was filed under Section 95 of the I&B Code by the Respondent in November, 2021, where the amount in default has been mentioned as Rs.2,44,57,796/-.The Adjudicating Authority passed the impugned order on 03.02.2022, issuing a notice of interim moratorium to the Appellant and appointing a Resolution Professional.
ISSUE RAISED
- Whether the benefit of Section 10A can also be claimed by a Personal Guarantor and an application under Section 95 shall be barred for a default which has arisen on or after 25.03.2020 till 24.03.2021.
ARGUMENTS ADVANCED BY THE APPELLANT
- It was submitted that Section 10A of the I&B Code prohibits the filing of any Corporate Insolvency Resolution Process (CIRP) applications by Corporate Debtors for any default occurring on or after March 25, 2020, for a period of six months. This period was later extended for an additional six months, ending on March 24, 2021.
- Since CIRP against the corporate debtor is barred, CIRP cannot be initiated against the personal guarantor either. If Section 10A is not interpreted to protect the Personal Guarantor as well, the provision will turn out to be discriminatory. The Principal Borrower's default is the prerequisite for initiating the insolvency resolution procedure. When the default of Principal Borrower is covered by Section 10A, no insolvency resolution process can be initiated. The protection given to the Corporate Debtor should also be applicable to the Personal Guarantor.
- No notice was issued to the appellant on the appointment of the Resolution Professional. This is a failure of the due process of law.
ARGUMENTS ADVANCED BY THE RESPONDENT
- It was contended that the protection under Section 10A against initiation of insolvency process was only applicable to the Corporate Debtor. It cannot be extended to an application under Section 95, as its provisions are clear in this matter.
- A notice in Form-B was issued to the appellant before filing the application under Section 95. The appellant had appeared before the Adjudicating Authority and prayed for 14 days of time to reply.
JUDGEMENT ANALYSIS
- Section 10A contains a prohibition against initiation of CIRP of a Corporate Debtor for any default arising on or after 25.03.2020. When the Section was inserted, the whole country was gripped with corona virus and protection against CIRP was provided to the Corporate Debtor to ensure that the threat of insolvency resolution may not affect their activities. When this Section was inserted, no corresponding change was brought about in Chapter III Part III of the Code, of which Section 95 was a part. The legislators should have inserted a provision akin to this if protection against the insolvency process for the Corporate Debtor was intended.
- The principles of statutory interpretations make it clear that when a word of a statute is clear, plain and, unambiguous the courts are bound to give effect to that meaning irrespective of consequences. The Court cited relevant judgements as to this. Pertaining to this principle, in this case, protection against CIRP can only be provided to the Corporate Debtor. Thus the submission by the appellant cannot be accepted.
- As to the issuing of notice, it has been clear that a notice under Form-B had been issued to the appellant.
- Thus the interim moratorium shall commence on the date mentioned. The Personal Guarantor can raise all pleas opposing the admission of Section 95 when the Adjudicating Authority passes such order under Section 100, of which the time has not come yet.
CONCLUSION
Thus the Court dismissed the appeal stating the observations. Section 10A is capable of only one interpretation, which is the one provided in the statute. It protects only the Corporate Debtor against insolvency, and not the Personal Guarantor.
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