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2024 Supreme(Online)(NCLAT) 451
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
Justice Ashok Bhushan (Chairperson) , Hon'ble Mr. Barun Mitra (Member (Technical)) ,
Tulip Hotel Private Limited (The Suspended Board – Appellant
Versus
J C Flowers Asset Reconstructions Pvt. Ltd. – Respondent
1146/ND/2023 COMPANY APPEAL(AT)(INS)
Mr. Virender Ganda, Sr. Advocate with Mr. Raghav Anand, Mr. Ayandeb Mitra, Advocates. Respondents:Mr. Abhishek Anand, Mr. Sajal Jain, Advocates.
The court affirmed the validity of corporate guarantees and the applicability of the Doctrine of Indoor Management, allowing simultaneous proceedings against corporate guarantors and principal borrowers in insolvency cases.
Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Section 61 and Section 7 - Corporate Insolvency Resolution Process (CIRP) - Appeal against admission of petition for CIRP of Corporate Debtor as Corporate Guarantor - The Adjudicating Authority admitted the petition based on the invocation of corporate guarantees and the financial creditor's claims. (Paras 1, 2, 10, 36)
(B) Corporate Guarantees - Validity - The court upheld the validity of the Deeds of Guarantee executed by the Corporate Debtor, emphasizing the Doctrine of Indoor Management and the presumption of good faith in corporate governance. (Paras 20, 24, 36)
(C) Forgery Allegations - The court found no conclusive evidence of forgery regarding the Deeds of Guarantee, noting that the Appellant failed to challenge the documents in a competent court prior to the appeal. (Paras 26, 36)
(D) Simultaneous Proceedings - The court ruled that the financial creditor can proceed against both the principal borrower and the corporate guarantor simultaneously in case of default. (Paras 36, 37)
Facts of the case:
The appeal was filed by the suspended Director of the Corporate Debtor against the admission of a petition under Section 7 of the IBC initiated by Yes Bank for CIRP due to defaults in loan repayments. The Corporate Debtor executed corporate guarantees for loans to two borrowers. The Appellant contested the validity of the guarantees and the authority of the person who filed the application.
Findings of Court:
The court found that the Adjudicating Authority correctly admitted the petition based on the evidence of financial debt and default, and upheld the validity of the corporate guarantees.
Issues: The main issues included the validity of the Deeds of Guarantee, the authority of the representative filing the application, and the simultaneous proceedings against the Corporate Debtor and principal borrowers.
Ratio Decidendi: The court reasoned that the Doctrine of Indoor Management protects third parties dealing with companies, and the absence of a challenge to the Deeds of Guarantee in a competent court undermined the Appellant's claims of forgery.
Result: Appeal dismissed.
JUDGEMENT
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[Per: Barun Mitra, Member (Technical)]
- The present appeal filed under Section 61 of Insolvency and Bankruptcy Code, 2016 (‘IBC’ in short) by the Appellant arises out of the Order dated 16.04.2023 (hereinafter referred to as ‘Impugned Order’) passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench – IV) in Company Petition (IB) No. 05/MB-IV/2020. By the impugned order, the Adjudicating Authority has admitted the petition under Section 7 of the IBC and allowed the initiation of Corporate Insolvency Resolution Process (“CIRP”
- in short) of the Corporate Debtor in its capacity as Corporate Guarantor.
- Aggrieved by this impugned order, the present appeal has been preferred by the suspended Director of the Corporate Debtor.
2. The salient facts of this case which are relevant to be noticed to decide this matter are as below:
- The Respondent No. 1/Financial Creditor - Yes Bank had filed Section 7 application on 13.12.2019 for initiation of CIRP of Appellant/Corporate Debtor - Tulip Hotels in respect of their debt liability as Corporate Guarantor for loan purportedly disbursed by the Financial Creditor to Cox & Kings Ltd. (hereinafter referred to as ‘Borrower No. 1’) and to Ezeego One Travels and Tours Ltd. (hereinafter referred to as ‘Borrower No.2’). Yes Bank has claimed to have sanctioned a Cash Credit Facility to Borrower No. 1 on 30.05.2017 for Rs.100 cr. To disburse the said loan, a Master Facility Agreement was executed on 06.06.2017. Subsequently, on 26.06.2018, the Cash Credit Facility was enhanced to Rs.350 cr by an Addendum to the Facility Letter and in pursuance thereof a Supplemental Facility Agreement was executed on 26.06.2018. Subsequently, an Addendum to the Facility letter followed by a Supplemental Master Facility Agreement was executed on 12.03.2019 for providing enhanced Cash Credit Facility up to Rs. 450 cr. which mentioned the additional security of Corporate Guarantee to be provided by the Appellant. On 26.04.2019, the Appellant executed the purported Deed of Guarantee in favour of Yes Bank to stand guarantee for the loan facility in respect of Borrower No.1 to the extent of Rs.450 cr. On 20.11.2019, the Yes Bank invoked the Corporate Guarantee demanding the Appellant to pay Rs.450 cr. Yes Bank has claimed to have sanctioned Cash Credit Facility to Borrower No. 2 on 02.05.2017 for a term loan of Rs.100 cr and a Facility Letter issued. To execute this Cash Credit Facility, a Term Loan Agreement was entered into on 16.05.2017. A purported deed of mortgage was executed by the Appellant on 12.02.2018 in favour of the Yes Bank for a property at Kerala. Subsequently, a Short-Term Loan Agreement was signed and a Facility letter was issued on 27.08.2018 sanctioning Rs. 350 cr. An Addendum to the Facility letter dated 10.07.2019 was issued by Yes Bank which mentioned the additional security to be provided by the Appellant. On 10.07.2019, the Appellant executed the purported Deed of Guarantee in favour of Yes Bank to stand guarantee for the loan facility in respect of Borrower No.1 to the extent of Rs.450 cr. On 26.08.2019, the Yes Bank invoked the Corporate Guarantee demanding the Appellant to pay Rs.450 cr. During the pendency of Section 7 application, Yes Bank had assigned the debt to J.C. Flowers Asset Reconstruction Pvt. Ltd. (hereinafter referred to as ‘JCF’).
- JCF, being the assignee, filed an IA No.798 of 2023 for substitution of their name in place of Yes Bank in the Section 7 proceedings which was allowed by the Adjudicating Authority on 06.03.2023. The Appellant filed IA No. 362 of 2023 challenging the assignment of debt in favour of JCF which was dismissed by the Adjudicating Authority on 23.03.2023. The Corporate Debtor having failed to repay the amount as mentioned in the letters of invocation of guarantee dated 26.08.2019 and 20.11.2019 aggregating Rs.900 cr, the Respondent No. 1 filed the Section 7 application which has been admitted by the Adjudi
