Adjudicating Authority Rejects Application For Initiating Personal Insolvency Resolution Process Due To Forum Shopping: NCLT Delhi

The National Company Law Tribunal, Delhi Bench, comprising Shri Bachu Venkat Balram Das (Judicial Member) and Shri Atul Chaturvedi (Technical Member), while adjudicating an application under Section 95 of Insolvency and Bankruptcy Code, 2016 (“IBC, 2016”) has held that the applicant has approached all possible forums for remedies, constituting forum shopping. It was stated that this conduct indicates the applicant did not approach the Adjudicating Authority with clean hands. Background Facts Ms. Parul Upadhyay (“Respondent”/ “Personal Guarantor”) is the Director of M/s. IAP Company Private Limited (“Corporate Debtor”). M/s. Intec Capital Limited (“Financial Creditor”/ “Applicant”) was approached by the Corporate Debtor through its promotors/shareholders/directors/representatives for getting the loan facility for business purposes. Based on the discussion, documents and information provided, the applicant agreed to sanction and disburse loan/financial facility amounting to Rs. 85,00,000/- vide loan agreement dated 31.08.2016. As per the Loan agreement, the reference to the Borrower in the loan agreement includes the Co-Borrower/Guarantor. After the disbursement of loan facility, the payments were not made to the Applicant as per repayment schedule since the Corporate Debtor could not maintain adequate amount in the bank account. The Respondent was in the capacity of Personal Guarantor/Co-borrower in the Loan Agreement and various documents which stated the joint and several liability to pay to the Applicant. The Corporate Debtor wrongfully withheld the legitimate monies that were owed to the Applicant and thus constituted 'events of defaults' as mentioned in the loan agreement. The Applicant recalled the Loan facility vide Loan Recall cum Arbitration Notice dated 09.01.2018 but no outstanding dues were paid. The Applicant had also preferred arbitration proceedings against the Corporate Debtor which resulted in the arbitral award dated 28.12.2018. The Corporate Insolvency Resolution Process ("CIRP") for Corporate Debtor commenced on 28.02.2018. The Applicant had also initiated the proceedings under Section 138 of Negotiable Instrument Act, 1881 against the respondents towards the security cheque. It was contended by the Respondent that the petition to initiate insolvency proceedings cannot be maintained since he is not the personal guarantor. The Loan Agreement does not mention Respondent as personal guarantor which shows that the parties always intended Respondent to be co-borrower and not personal guarantor. It was also argued that the Respondent has not signed any guarantee deed or other contract of guarantee or agreed to act as surety. His liability, if any, is joint and several in his capacity as co-borrower and thus he doesn't fall under the category of a personal guarantor. It was contended that the arbitral award on which the applicant relied was obtained by fraud. NCLT Verdict It was observed by the tribunal that Clause 2.13 of the Contract says “Notwithstanding anything herein stated, where the Loan is provided to more than one Borrowers/Co-Borrowers, the liability of the Borrowers to pay, repay and/or discharge obligations and to observe the terms and conditions of this Agreement and/or any other agreements and documents which may been or may be executed by the Borrower with INTEC in respect of this Loan, is joint and several”. It was stated by the tribunal that the above provision makes it clear that the liability of the borrowers and co-borrowers under the contract to pay, repay and/or discharge obligations and to observe the terms and conditions of the agreement is joint and several. It was also observed that as per the loan agreement dated 31.08.2016 and the record of default, the Respondent is not the Personal Guarantor. It was held that since the Respondent is not a Personal Guarantor, the application under Section 95(1) of the Code is not maintainable. It was also observed that the applicant, has approached other legal forums including the NCLT. The Applicant had initiated Arbitration proceedings under the Arbitration and Conciliation Act, 1996. The Applicant had also initiated the proceedings under Section 138 of Negotiable Instrument Act, 1881 which evidences that applicant has approached all the possible forums for remedy. This implies that the applicant is indulging in the forum shopping and so the applicant has not approached the NCLT with clean hands. With the aforesaid observation, the Application seeking initiation of the Personal Insolvency Resolution Process against the Respondent was rejected. Case: M/s. INTEC CAPITAL LIMITED LTD. Vs MR. PARUL UPADHYAY Case No. CP(IB) 315(ND)/2022 & IA No. 913/2024 Order Dated:11.06.2024 Counsels for the Applicant:Mr. Nilesh Sharma, Ms. Swastika Kumari, Mr/Ms. Adyasha Nanda, Advs a/w Mr. Manoj Kumar Anand, RP. Counsels for the ...

Adjudicating Authority Rejects Application For Initiating Personal Insolvency Resolution Process Due To Forum Shopping: NCLT Delhi

Aditi Gupta

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