Madras High Court
Rohit Nath @ Rohit Rabindra Nath vs Keb Hana Bank Ltd on 28 July, 2021
C.R.P.(PD) No.1289 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 28.07.2021
CORAM :
THE HON'BLE MR.SANJIB BANERJEE, CHIEF JUSTICE
AND
THE HON'BLE MR.JUSTICE SENTHILKUMAR RAMAMOORTHY
C.R.P.(PD) No.1289 of 2021
Rohit Nath @ Rohit Rabindra Nath .. Petitioner
Vs.
KEB Hana Bank Ltd
No.29, Bannari Amman Towers,
4th Floor, Dr.Radhakrishnan Road,
Mylapore, Chennai 4 .. Respondent
Prayer: Civil revision petition filed to strike-off the proceedings in IBC
SR No.2643 of 2020 resulting in consequential order dated
22.10.2020 pending on the file of the Debts Recovery Tribunal-II,
Chennai.
For Petitioner : Ms.Iyengar Shubaranjani Ananth
For Respondent : Mr.P.Vinod Kumar
ORDER
(Made by the Hon'ble Chief Justice)
There is no merit in the petition and the entire exercise has
been a complete waste of time by an admitted defaulter who tends to
____________
http://www.judis.nic.in
C.R.P.(PD) No.1289 of 2021
believe that it is a right of an Indian citizen to obtain a loan in the
name of a corporate entity and not show up at the time of repayment.
2. A yarn is sought to be spun out by referring to judgments
which are utterly irrelevant in the context, provisions of the erstwhile
Companies Act, 1956 and the salutary principle that all matters
pertaining to a single transaction should be consolidated and taken
up by one adjudicatory forum. Every trick to throw wool over the
Court's eyes is resorted to in an irreverent attempt to prey on the
Court's perceived ignorance of the tenets of corporate law.
3. Shorn of the irrelevant and the rubbish, the main issue
involved is whether an individual, in his capacity as a guarantor in
connection with credit facilities granted by a bank or financial
institution to a corporate entity, may be proceeded against by way of
insolvency proceedings under Section 95(1) of the Insolvency and
Bankruptcy Code, 2016 before an appropriate Debts Recovery
Tribunal.
____________
http://www.judis.nic.in
C.R.P.(PD) No.1289 of 2021
4. In this case, a notice was issued on February 18, 2020 by the
respondent bank 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.
The notice was in accordance with Form B prescribed in the said
Rules of 2019. The notice was addressed to the petitioner. It
indicated the total quantum outstanding and appended all documents
in support of the details set out in the prescribed form. To boot, the
notice enclosed copies of the deeds of personal guarantee dated July
27, 2016, October 26, 2016, February 21, 2017 and June 5, 2017
and, in addition, other documents and deeds of indemnity.
5. In its fourth paragraph, the notice required the noticee "to
unconditionally pay the unpaid debt in full within fourteen days from
the receipt of this letter ...". Over the next few words in the said
paragraph, the issuing bank put the noticee on notice that
appropriate "insolvency resolution process, under the Code" would be
initiated against the noticee.
____________
http://www.judis.nic.in
C.R.P.(PD) No.1289 of 2021
6. Rule 7 of the said Rules of 2019 provides for an application
by a creditor in certain circumstances. The entirety of the such Rule
must be seen:
"7. Application by creditor: - (1) A demand notice under
clause (b) of sub-section (4) of section 95 shall be
served on the guarantor demanding payment of the
amount of default, in Form B.
(2) The application under sub-section (1) of
section 95 shall be submitted in Form C, along with a
fee of two thousand rupees.
(3) The creditor shall serve forthwith a copy of the
application referred to in sub-rule (2) to the guarantor
and the corporate debtor for whom the guarantor is a
personal guarantor.
(4) In case of a joint application, the creditors
may nominate one amongst themselves to act on behalf
of all the creditors."
7. As is evident from the first sub-rule, the notice is to be
issued in Form B which is prescribed as a part of the Rules. There is
no dispute that the prescribed form was adhered to. Again, it is self-
evident that the noticee was aware of the intent and purpose of the
notice and what the relevant notice obliged the noticee to do. True to
the conduct of an Indian defaulter, the noticee responded with a
____________
http://www.judis.nic.in
C.R.P.(PD) No.1289 of 2021
settlement suggestion. Indeed, the response to the notice was of
such quality that the petitioner herein has been ashamed to include it
as a part of the disclosed documents. However, what has been
included with the documents filed is the bank's response of February
18, 2020 to the petitioner's earlier offer of settlement. The bank's
response of February 18, 2020 in such regard refers to the meagre
payment that had been made by the borrower and reiterated the
bank's stand to proceed against the borrower, the guarantor and the
secured assets.
8. It is in such circumstances that the insolvency proceedings
came to be instituted before the Debts Recovery Tribunal, Chennai
and it was filed as per Form C in accordance with the requirement of
Rule 7(2) of the said Rules of 2019.
9. Rule 3 of the said Rules of 2019 is the definitions provision
for the said Rules. The expression “Adjudicating Authority” has been
defined as follows:
“3.Definitions.-(1) In these rules, unless the context
otherwise requires, -
____________
http://www.judis.nic.in
C.R.P.(PD) No.1289 of 2021
(a) “Adjudicating Authority” means -
(i) for the purpose of section 60, the National Company Law
Tribunal constituted under section 408 of the Companies Act, 2013
(18 of 2013); or
(ii) in cases other than sub-clause (i), the Debt Recovery
Tribunal established under sub-section (1-A) of section 3 of the
Recovery of Debts and Bankruptcy Act, 1993 (51 of 1993);
(b) ...”
10. Since such rules of Rules, 2019 had been notified upon
being published in the Gazette of India on November 15, 2019, there
can be no doubt that the Adjudicating Authority in respect of a
guarantor who has furnished a personal guarantee in connection with
credit facilities obtained by a corporate entity, would be the
appropriate Debts Recovery Tribunal.
11. The statutory source of authority for carrying such
application to the Debts Recovery Tribunal is found in Section 95 of
the Code of 2016. Section 95 is included in Chapter III of Part III of
____________
http://www.judis.nic.in
C.R.P.(PD) No.1289 of 2021
the Code. Part III of the Code is intituled "Insolvency Resolution and
Bankruptcy for Individuals and Partnership Firms". The first Chapter
in such Part contains the preliminary provisions including the
definitions section. The second Chapter of such Part carries the
heading "Fresh Start Process" and begins with Section 80, the first
sub-section whereof envisages that a debtor, who is unable to pay his
debt and fulfils the conditions specified in the provision, would be
entitled to make an application for a fresh start for discharge of his
qualifying debt under such Chapter. Chapter III of Part III of the said
Code begins with Section 94. Section 94(1) permits a debtor who
commits a default to apply personally or through a resolution
professional to the adjudicating authority for initiating an insolvency
resolution process. Section 95 of the Code pertains to applications by
creditors to initiate the insolvency resolution process. Indeed, the
Recovery of Debts Due to Banks and Financial Institutions Act, 1993
(51 of 1993) has been rechristened as Recovery of Debts and
Bankruptcy Act possibly because the Debts Recovery Tribunal now
also takes up insolvency and bankruptcy matters.
12. Section 79(1) of the Code defines the expression
____________
http://www.judis.nic.in
C.R.P.(PD) No.1289 of 2021
“Adjudicating Authority” wherever such expression appears in Part
III of the Code:
"79. Definitions.
In this Part, unless the context otherwise
requires, -
(1) "Adjudicating Authority" means the Debt
Recovery Tribunal constituted under sub-section (1) of
section 3 of the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 (51 of 1993);
(2) ...."
Thus, a creditor may apply to the jurisdictional Debts Recovery
Tribunal for initiating an insolvency resolution process against
appropriate persons under Section 95 of the Code. Section 60 of the
Code, which is included in Part II thereof, identifies the adjudicatory
authority in relation to insolvency resolution and liquidation for
corporate persons. Section 60(1) of the Code mandates that
insolvency resolution and liquidation for corporate persons, including
corporate debtors and personal guarantors, may be brought before
the National Company Law Tribunal having territorial jurisdiction over
the places where the registered office of the corporate person is
located. However, a “corporate debtor” is defined in Section 3(8) of
the Code to mean a corporate person who owes a debt to any person
____________
http://www.judis.nic.in
C.R.P.(PD) No.1289 of 2021
and a "corporate person", in turn, is defined in Section 3(7) of the
Code to mean a company, a limited liability partnership firm or any
person incorporated with limited liability under any law for the time
being in force but not including any financial service provider.
13. Thus, by no stretch of imagination, may a human individual,
whether as a guarantor or otherwise, be seen to be a corporate
debtor or a corporate person within the definitions ascribed to such
expressions in the Code.
14. Section 95(1) of the Code read with Section 79(1) thereof
permits a creditor to apply to any Debts Recovery Tribunal for
initiating an insolvency resolution process under such provision.
"Debtor" is defined in the inclusive definition in Part III of the Code
as including a judgment-debtor.
15. Section 95(1) of the Code, in its ordinary form, allows a
creditor to initiate an insolvency resolution process. It does not
specify as to who the debtor may be. The petitioner relies on Section
95(2) of the Code which covers partnership debts and conceives of an
____________
http://www.judis.nic.in
C.R.P.(PD) No.1289 of 2021
insolvency resolution process being initiated against a partnership
firm or any one or more partners of the firm. The attempt of the
petitioner is to restrict the operation of Section 95(1) – and, thus, the
entirety of Section 95 of the Code – to matters pertaining to
partnership debts and against the concerned partnership firm or any
one or more of its partners. The proverbial red herring is in play.
16. Such a construction cannot be given. If Section 95 were to
be confined to only partnership debts or construed to permit
insolvency resolution processes to be initiated only against the
relevant firms or their partners, it would render sub-section (1)
redundant. The most rudimentary tenets of statutory interpretation
do not permit any provision, and especially an independent provision
as contained in a whole sub-section, to be regarded otiose, unless
there are obvious compelling reasons.
17. The petitioner seeks to send the Court on a wild goose
chase by seeking to take advantage of the perceived anomaly upon
the Code, like the Companies Act, 2013, being notified and
implemented in stages. That Section 95(1) of the Code applies to any
____________
http://www.judis.nic.in
C.R.P.(PD) No.1289 of 2021
debtor, other than debtors against whom an insolvency resolution
process may be initiated under other specific provisions, is apparent.
18. The construction as suggested by the petitioner would also
be impermissible, inter alia, in the light of Section 94 which permits
an individual debtor to initiate an insolvency resolution process and
the use of the general word ‘debtor’ therein, without it being confined
to certain classes of persons or partners of partnership firms. Indeed,
Section 243 of the Code, which has not yet been notified, repeals the
Presidency Towns Insolvency Act, 1909 and Provincial Insolvency Act,
1920. The contemplated repeal of such statutes, read with the
avowed object of the Code, makes the position abundantly clear and
completely beyond doubt.
19. The long title of the Code indicates that it is, “an act to
consolidate and amend the laws relating to reorganization and
insolvency resolution of corporate persons, partnership firms and
individuals in a time bound manner...”. When a statute proclaims to
be the consolidating and amending enactment, it is a complete Code
unto itself and all matters pertaining to the subjects included would
____________
http://www.judis.nic.in
C.R.P.(PD) No.1289 of 2021
be governed by such Code. The three classes of persons indicated to
be governed by the Code are corporate persons, partnership firms
and individuals.
20. In addition, Section 2 of the Code indicates how the
provisions of the Code would operate in respect of the several classes
of persons to which the Code applies. One such class is covered by
Clause (e) pertaining to personal guarantors to corporate debtors.
Section 2 of the Code was notified with effect from November 1, 2016
and Clause (e) has been enforced with effect from December 1, 2019
insofar as it relates to personal guarantors to corporate debtors vide
S.O. 4126(E) dated November 15, 2019. The said Rules of 2019 were
also given effect to around the same time.
21. Thus, notwithstanding it still being permissible to carry a
personal insolvency case under the 1909 or 1920 statute, whichever
is applicable, insolvency proceedings against guarantors to corporate
debtors may not be carried under the statutes of 1909 or 1920
notwithstanding Section 243 of the Code not having been notified.
That is because of the overriding operation of the Code under Section
____________
http://www.judis.nic.in
C.R.P.(PD) No.1289 of 2021
238 thereof and Section 2(c) of the Code having been notified. There
are other indicators in the body of the Code that point to the Debts
Recovery Tribunal being an appropriate authority as in the present
case. Section 179 of the Code, for instance, identifies the
adjudicating authority for entertaining insolvency proceedings
pertaining to individuals and partnership firms. Sub-section (1) of
such provision mandates that subject to Section 60 of the Code, the
adjudicating authority in relation to insolvency matters pertaining to
individuals and firms shall be the Debts Recovery Tribunal having
territorial jurisdiction.
22. The text of Section 60(2) discloses that Section 60 of the
Code would apply to an individual only if there is a corporate
insolvency resolution process pertaining to the corporate entity which
is the principal debtor, that has been filed or commenced. In other
words, in case of company ‘A’ being the principal debtor and an
individual ‘P’ the guarantor promising repayment of the credit
facilities obtained by ‘A’, if a corporate insolvency resolution process
is initiated under the provisions of the Code pertaining to company
‘A’, the insolvency resolution process pertaining to guarantor ‘P’
____________
http://www.judis.nic.in
C.R.P.(PD) No.1289 of 2021
would per force be before the same adjudicating authority, viz., the
National Company Law Tribunal. But, where there is no corporate
insolvency resolution process initiated in respect of company ‘A’,
insolvency proceedings pertaining to guarantor ‘P’ must necessarily
be carried only to the jurisdictional Debts Recovery Tribunal and not
to any other forum. To repeat, the provisions of the Acts of 1909 and
1920 will have no manner of application to guarantors who have
furnished guarantees in connection with credit facilities obtained by
corporate entities.
23. In any event, in view of Section 128 of the Contract Act,
1872 the liability of a guarantor is co-extensive with that of the
principal-debtor, unless it is otherwise provided by the contract. The
petitioner does not claim that there is any agreement or clause
present in any agreement that obliges the creditor-bank to exhaust
its remedies against the concerned corporate entity before proceeding
against the guarantor. The rule as embodied in Section 128 of the
Act of 1872 will apply in equal measure to a guarantor who has
furnished a guarantee in connection with any credit facilities obtained
by a corporate entity.
____________
http://www.judis.nic.in
C.R.P.(PD) No.1289 of 2021
24. Accordingly, the petition is found to be completely devoid of
merit and nothing but a kite-flying exercise to waste time and dodge
the inevitable. For all of the petitioner’s efforts, the petitioner will pay
costs assessed at Rs.50,000/- (Rupees Fifty Thousand only) to the
respondent bank which the respondent bank will be entitled to
recover in course of the insolvency resolution process initiated before
the appropriate Debts Recovery Tribunal.
C.R.P.No.1259 of 2021 is dismissed. CMP No.10079 of 2021 is
closed.
(S.B., CJ.) (S.K.R., J.)
28.07.2021
Index : Yes
kpl
To:
The Debts Recovery Tribunal-II, Chennai.
____________
http://www.judis.nic.in
C.R.P.(PD) No.1289 of 2021
THE HON'BLE CHIEF JUSTICE
AND
SENTHILKUMAR RAMAMOORTHY, J.
(kpl)
C.R.P.(PD) No.1289 of 2021
28.07.2021
____________
http://www.judis.nic.in
