Nisus Finance And Investment Managers LLP And Ors vs Earthcon Construction Pvt. Ltd.

Sumita Purkayastha, Member (T)

The present petition has been filed under Section 7 of the Insolvency &Bankruptcy Code, 2016, (hereinafter referred to as the "Code"), praying for initiation of Corporate Insolvency Resolution Process of the Respondent/Corporate Debtor on grounds of its inability to liquidate its financial debt.

As per the averments made Earthcon Infracon Pvt. Ltd. (EIPL) "Principal Borrower") who is engaged in the business of real estate construction and development required funds for purchasing certain residential units in a project being developed by the Earthcon Universal Infratech Pvt. Ltd (EUIPL), therefore issued 5250 (no.s) senior, secured, transferable, unlisted, unrated, redeemable, Non Convertible Debentures ("NCDs") having face value of Rs. 1,00,000/- and raised a sum of Rs. 52,50,00,000/-("Principal Amount") under a Debenture Trust Deed ("DTD") dated 13.06.2017. The Financial Creditors, Nisus Finance & Investment Managers LLP. and Beacon Trusteeship Limited are the Facility Agents and Debenture Trustee, respectively, appointed for the benefit of the debenture holders under the said Debenture Trust Deed.

The present Petition has been filed against Earthcon Construction Pvt. Ltd. "Corporate Guarantor" (i.e., the Corporate Debtor herein) who had secured the repayment of the Principal amount along with the interest under the above mentioned DTD. This Corporate Guarantee was unconditional and irrevocable and was given by the in favour of the Debenture Trustee to secure the repayment of amounts raised under the DTD if the Principal Borrower fails to pay all the secured obligations on the date of redemption.

That it was agreed that the Principal amount shall be repaid by the Principal Borrower in 4 equal quaterly instalments ("Principal Repayment Dates") i.e. 31st March 2019, 30th June, 2019, 30th September and 31st December 2019 respectively. The Principal Borrower defaulted in making payment of first instalment amounting to Rs. 13,12,50,000/- which was due and payable on 31.03.2019. Default notice of the same was sent to the Principal Borrower vide letter dated 24.04.2019. The Financial Creditor invoked the Corporate Guarantee issued by the Corporate Debtor dated 13.06.2017 and demanded payment of the first instalment along with the interests, which was not adhered or performed by the Corporate Debtor as the same duties and obligations fell upon them under the DTD and the Deed of Corporate Guarantee.

The Financial Creditor vide notice dated 03.07.2019 called upon the Principal Borrower to redeem all the issued debentures being 5250 (no.s) NCDs having face value of Rs. 1,00,000/- aggregating to Rs. 52,50,00,000/- along with the additional default interest @ 3% lump sum on the entire Debenture Outstanding and pay coupon interest of 30% per annum compounded monthly for the entirety of the tenure on the outstanding amount along with the Resolution Fee of 10% under the DTD dated 13.06.2017.

The Demand Notice dated 09.05.2019 was issued to the Corporate Debtor by the Financial Creditor under the Deed of Corporate Guarantee & Demand Notice dated 05.07.2019 was sent to the Corporate Debtor under Corporate Guarantee for Redemption of Debentures.

Consequent to the issuing of notice by this Tribunal the Corporate Debtor filed a reply on 26.08.2019 in which the following contentions have been taken:

i. As per Clause 11 of the Term Sheet executed on 28.10.2017, the tenure of investment/date of maturity of the Debentures were 30 months from the date of 1st disbursement of Tranche which was 30.06.2017. Further as per the terms agreed between the Borrower and the Financial Creditors pursuant to the understanding as recorded in the Term sheet, the Financial Creditor disbursed the 1st tranche of the repayments of Rs. 13.15 Crore demanded by preponing the repayment. It is submitted that the aforesaid disbursement of Rs. 13.15 Cr began on 30.06.2017 and were concluded on 06.09.2017, in contravention to the understanding as recorded in the said Term Sheet. The Financial Creditor deliberately and purposely, delayed the disbursements of funds as it was originally agreed. The Financial Creditor acted prematurely to cause detriment to the Borrower's as well as the Corporate Debtor interests, and acted in contravention of agreed terms and conditions between the parties.

ii. As per the understanding being reached the funds being extended by the Financial Creditors to the Borrower were supposed to be with the borrower for the period of 30 months, on basis thereof Borrower had planned execution of its project for which the facility was availed, nonetheless the Financial Creditors deliberately and purposely, to deceive the borrower as well as the Corporate Debtor only allowed the said funds to be with the Borrower only for a period of 19 months. The Financial Creditor asked for repayment of part of the facility before the expiry of the tenure of investment/date of maturity which was 31.12.2019 or 30 months from the date of the 1st tranche, is gross violation of the agreed terms and conditions.

iii. The Corporate Debtor had also invoked the arbitration clause in pursuance to the Clause 51 of the Debenture Trust Deed dated 13.06.2017. The notice dated 24.06.2019 invoking the arbitration clause was sent by the Corporate Debtor to the Financial Creditors. The Financial Creditor has not replied to the said Arbitration Notice.

iv. The Financial Creditor have also initiated separate proceedings under Section 9 of the Arbitration and Conciliation Act, 1996 vide Commercial Arbitration Petition No. 851 of 2019 against the borrower, Developer and the Corporate Debtor and the other Guarantor which is pending adjudication before the Hon'ble High Court of Bombay.

v. As per the terms of documentation being executed by the Borrower and the Developer with the Financial Creditor, 205 units/flats which are mortgaged with the Financial Creditor could not be trust upon by any of the Respondents. The approximate current market value, even calculated on the lowest price strata @3500 per Sq feet for the aforesaid 205 units which is to the tune of 3,64,240/- square feets could easily fetch a sum of Rs. 127,48,40,000/- which in any case is much higher than the actual receivables as claimed by the Financial Creditor.

After hearing the arguments of the Learned Counsels for the parties, the order was reserved by this Court on 07.11.2019. The Operational Creditor as well as the Corporate Debtor have also submitted their written submissions which have been gone through by us alongwith the documents on record.

The following contentions have been taken by the Corporate Debtor:

i. The Financial Creditor have granted financial facility of Rs. 52,50,000/- to a company namely Earthcon Infracon Pvt. Ltd. (EIPL). The said EIPL has been sent to CIRP vide order dated 23.08.2019 passed by a coordinate bench of this Hon'ble Tribunal in case bearing cp. No. 1601/ND/2019 titles as M/S. Emperos Infrastructure Pvt. Ltd. vs. M/S. Earthcon Infracon Pvt. Ltd. Subsequently Committee of Creditors (CoC) was constituted and the Financial Creditor No. 2 (Beacon) filed its claim of Rs. 60,90,62,274/- before the IRP appointed in terms of aforesaid order dated 23.08.2019.

ii. The Financial Creditor No. 2 preferred an appeal before the Hon'ble NCLAT against the order dated 23.08.2019 vide case No. CA (AT) (Insolvency) No. 896 of 2019 tided as Beacon Trusteeship Ltd. vs. Earthcon Infracon Pvt. Ltd. & Anr. The Hon'ble NCLAT vide its order dated 06.09.2019 dismissed the said appeal. Thereafter the Financial Creditor preferred a SLP bearing CA. No. 7641/2019 before the Hon'ble Supreme Court. The Hon'ble Apex Court vide its order dated 30.09.2019 has stayed the order dated 23.08.2019 passed by the Hon'ble NCLT.

iii. The Corporate Debtor has relied on the judgment passed by the Hon'ble NCLAT in the matter of Vishnu Kumar Agarwal Vs. M/S. Piramal Enterprises Ltd. Passed in case No. CA (AT) Insolvency No. 346 of 2018 on 08.01.2019. The Corporate Debtor placed its reference on paragraph No. 29, 31 & 32 of the said judgment which are reproduced herein below:

In the present case, the 'Financial Creditor'- ('M/s. Piramal Enterprises Ltd.') has claimed that it was owed financial debt of Rs. 40,28,76,461/- from 'Sunsystem Institute of Information Technology Put. Ltd.'- ("Corporate Guarantor No. 2"), which means that the 'Financial Creditor' was owed debt which is disbursed against the time value of money. Once such claim is made by the same very 'Financial Creditor'-('M/s. Piramal Enterprises Ltd.') against one of the 'Corporate Debtor' ('Corporate Guarantor No. 2') in respect of same financial debt for triggering 'Corporate Insolvency Resolution Process' and such application is admitted (on 24th May, 2018), the question arises as to whether for same very claim and for same very default, the application under Section 7 against the other 'Corporate Debtor'- ('Corporate Guarantor No. 1')-- 'Sunrise Naturopathy and Resorts Pvt. Ltd.' can be initiated?

The matter can be looked from another angle. The question arises whether the 'Financial Creditor'- ('M/s. Piramal Enterprises Ltd.') can claim same amount of Rs. 40,28,76,461/- from the 'Resolution Professional' appointed pursuant to the 'Corporate Insolvency Resolution Process' against the 'Corporate Guarantor No. 1' ('Sunrise Naturopathy and Resorts Pvt. Ltd.'), as also from the 'Resolution Professional' appointed pursuant to 'Corporate Insolvency Resolution Process' initiated against 'Sunsystem Institute of Information Technology Pvt. Ltd.'- ("Corporate Guarantor No. 2")? Admittedly, for same set of debt, claim cannot be filed by same 'Financial Creditor' in two separate 'Corporate Insolvency Resolution Processes'. If same claim cannot be claimed from 'Resolution Professionals' of separate 'Corporate Insolvency Resolution Processes', for same claim amount and default, two applications under Section 7 cannot be admitted simultaneously. Once for same claim the 'Corporate Insolvency Resolution Process' is initiated against one of the 'Corporate Debtor' after such initiation, the 'Financial Creditor' cannot trigger 'Corporate Insolvency Resolution Process' against the other 'Corporate Debtor(s)', for the same claim amount (debt).

There is no bar in the 'I&B Code' for filing simultaneously two applications under Section 7 against the 'Principal Borrower' as well as the 'Corporate Guarantor(s)' or against both the 'Guarantors'. However, once for same set of claim application under Section 7 filed by the 'Financial Creditor' is admitted against one of the 'Corporate Debtor' ('Principal Borrower' or 'Corporate Guarantor(s)'), second application by the same 'Financial Creditor' for same set of claim and default cannot be admitted against the other 'Corporate Debtor' (the 'Corporate Guarantor(s)' or the 'Principal Borrower'). Further, though there is a provision to file joint application under Section 7 by the 'Financial Creditors', no application can be filed by the 'Financial Creditor' against two or more 'Corporate Debtors' on the ground of joint liability ('Principal Borrower' and one 'Corporate Guarantor', or 'Principal Borrower' or two 'Corporate Guarantors' or one 'Corporate Guarantor' and other 'Corporate Guarantor'), till it is shown that the 'Corporate Debtors' combinedly are joint venture company.

iv. That the Financial Creditors have already filed their claim before the CoC constituted in terms of the order dated 23.08.2019 and as the claimed amount in the instant petition is exactly similar and identical to the claim which is already filed by Beacon before the said CoC therefore, the CIRP could not be triggered against the Corporate Debtor (CD) in this petition. The Principle Borrower, namely EIPL is already into CIRP and the matter is currently pending before the Hon'ble Apex Court and the CIRP has not been yet quashed or set aside by the Hon'ble Apex Court. There exists no cause of action, whatsoever, in favour of Financial Creditor to initiate the insolvency proceedings against the Corporate Debtor as doing so, shall violate the law being laid down by the Hon'ble NCLAT in Piramal Judgement, that for same set of debt, claim cannot be filed by the same Financial Creditor in two separate CIRP.

v. Since the Hon'ble Supreme Court is currently seized the matter therefore, taking into consideration about the judicial proprietary, it is humbly submitted that the present petition may either be dismissed or is adjourned sine-dine till further orders of the Hon'ble Supreme Court.

vi. The Financial Creditor has already initiated the proceedings under Section 7 of the IBC, 2016 vide CP. No. 1348 of 2019 before the Ld. National Company Law Tribunal Bench-Ill and was reserved on 22.10.2019. The amount and nature of Claim as claimed in the said application which is currently pending is exactly same to what the Financial Creditors have filed before the CoC of EIPL and as claimed in the instant petition. The Financial Creditors cannot be allowed to initiate and trigger three simultaneous CIRP for one set of claim as per the law.

The following contentions have been taken by the Financial Creditors:

i. The proof of default is in (i) Form C which is a record of financial information whith the National E-Governance Services Limited (NeSL) as on 10.05.2019 showing the amount due.

ii. If the Ld Adjudicating Authority is of the view that a Financial Creditor can, in relation to a debt under Section 7 of IBC 2016, proceed against two Corporate Guarantors or one Corporate Guarantor and the Principal Borrower, then there is no bar/embargo on the Ld Adjudicating to decide the present Section 7 Application. Therefore it is not in any manner a question of judicial propriety.

iii. That the issue on proceeding against the Corporate Guarantor or Principal Borrower is no longer res integra. In Dr. Vishnu Kumar Agarwal V. M/s. Piramal Enterprises [Company Appeal (AT) (Ins.) No. 346 of 2018] the Hon'ble NCLAT has observed in Para 32 of the order that there is no bar in the Insolvency and Bankruptsy Code for filing simultaneously two applications under Section 7 against the Principal Borrower as well as the Corporate Guarantor(s) or against both the Guarantors.

iv. There will be no question of "double dipping" or unjust enrichment" on the part of the Financial Creditors as its claim will be resolved only once and not twice. The Code provides a statutory right to the Financial Creditor to elect against whom he wishes to institute the CIRP.

On perusal of the documentary evidences placed on record and submissions made by both the parties, this Adjudicating Authority is of the view that a Financial Creditor can, in relation to a debt under Section 7 of IBC 2016, proceed against two Corporate Guarantors or one Corporate Guarantor and the Principal Borrower and there is no bar/per se. The judgment passed by the Hon'ble NCLAT in the matter of Vishnu Kumar Agarwal Vs. M/S. Piramal Enterprises Ltd. Passed in case No. CA (AT) Insolvency No. 346 of 2018 on 08.01.2019 it was held that if, for the same set of claim, an application has been admitted against one of the corporate debtors (i.e. principal borrower or corporate guarantor(s)), second application by the same financial creditor, for the same set of claim and default, cannot be admitted against the other corporate debtor. Further, it was held that, for the same set of debt, a claim cannot be filed by a financial creditor in two separate CIRPs of the principal borrower and the corporate guarantor. As per the DTD entered between the Principal Borrower and the Financial Creditor the Principal amount was to be repaid by the Principal Borrower in 4 equal quarterly instalments, wherein the Principal Borrower defaulted in making payment of the first instalment amounting to Rs. 13,12,50,000, therefore the Financial Creditor invoked the Corporate Guarantee issued by the Corporate Debtor dated 13.06.2017 and demanded payment of the first instalment as the same duties and obligations fell upon them under the DTD and the Deed of Corporate Guarantee therefore it is observed that the claim of the Financial Creditor against the Corporate Debtor arises from the same set of debt owed by the Principal Borrower. Since an application against the Principal Borrower has already been admitted vide order dated 08.01.2020 in CP. No. 1348 of 2019, this Adjudicating Authority is of the view that the present application is bound to be rejected without any cost.

Let the copy of the order be communicated to the Financial Creditor and the Corporate Debtor.