NCLT: Financial Creditor Can Proceed Against Principal Borrower as Well as Corporate Guarantors Simultaneously

NCLT: Financial Creditor Can Proceed Against Principal Borrower as Well as Corporate Guarantors Simultaneously

The National Company Law Tribunal (NCLT), Mumbai by its division bench comprising of Justice Kuldip Kumar Kareer (Judicial Member) and Anuradha Sanjay Bhatia (Technical Member) admitted Reliance Broadcast Network Limited., under the Corporate Insolvency Resolution Process (CIRP) in the petition filed by IDBI Trusteeship Services which had approached the Tribunal after the company allegedly failed to repay its dues of over Rs. 174 crore.

The bench observed that the Financial Creditor can proceed against the Principal Borrower as well as Corporate Guarantors simultaneously.

In the present case the IDBI Trusteeship Services Limited (Financial Creditor/ Petitioner/Debenture Trustee) on behalf of L & T Investment Management Limited (Debenture Holder) sought to initiate of Corporate Insolvency Resolution Process (“CIRP”) against Reliance Broadcast Network Limited (Corporate Debtor) by invoking the provisions of Section 7 Insolvency and Bankruptcy code (hereinafter called “Code”) read with rule 4 of Insolvency and Bankruptcy (Application to Adjudication Authority) Rules, 2016 for a Resolution of an unresolved Financial Debt of Rs. 174,84,21,640.

The Petitioner submitted that the Corporate Debtor had executed a Debenture Trust Deed (DTD-1) dated 10.08.2015 in favor of the Petitioner wherein 1500 Rated Unlisted Redeemable Non-Convertible Debentures (“NCDs”) were issued for a face value of Rs. 10,00,000/- each aggregating to Rs. 150 crores in Series A, B and C. The said issuance was in furtherance to the execution of the Disclosure Document dated 13th May, 2015 by the Corporate Debtor.

The Petitioner further submitted that the Debenture Holder herein had subscribed NCD worth Rs. 50 Crores in series C with a redemption date of 13.05.2020. The Corporate Debtor had also executed a Put Option Agreement dated 12th May, 2015 along with Reliance Capital Limited (“Corporate Guarantor”) and the Petitioner, for the purpose of entitling the investors/debenture holder to exit their investments in the NCDs either in full or in part.

Furthermore, the Corporate Debtor had also executed an unattested deed of Hypothecation dated 10.08.2015 and by a virtue of the said hypothecation, a charge was created in favor of the Petitioner over the secured assets and the current account/ designated account of the Corporate Debtor.

Additionally, the Corporate Debtor had executed another Debenture Trust Deed dated 6th January, 2016 (DTD 2).

Further, Reliance Capital Limited had executed a deed of guarantee dated 3rd June, 2019 in favor of the Petitioner resultantly, guaranteeing repayment all the outstanding amount becoming due and payable by the Respondent in respect of the NCDs along with any other monies due under the DTD 2.

The Respondent submitted that with regard to Debenture Trust Deed dated 06.01.2016, the date of default for Series C was 8th October, 2020 and with respect to DTD-1 the date of default mentioned by the Petitioner was 13th May, 2020. Therefore, the Respondent submitted that the present debt falls within the four corners of Section 10A of the Code, and hence the present Petition was not maintainable and ought to be dismissed.

In addition to this, the Petitioner had vide letter dated 12th October, 2020 issued to the Respondent whereby the latter was asked to pay an amount arising out of DTD-2 dated 06.01.2016 of Rs. 67.8 crores, not later than 4:00 PM on 13th October, 2020. Thus, the Respondent submitted that the debt fell due on 13th October, 2020 which falls under the period prescribed by Section 10A of the Code.

The NCLT observed, “the trigger for initiation of CIRP by Financial Creditor is default on part of Corporate Debtor is the date when default occurs. Since it is not disputed that the maturity date in respect of Debenture Trust Deed dated 6th January, 2016 (Series-B) was 8th October, 2019 and the payment was not made on the date of maturity, the date of default in this case undisputedly is 8th October, 2019. In the light of this fact, it cannot be said that the Petition is hit by Section 10A of the Code.”

The NCLT further asserted that- on the date of maturity, the payment becomes instantly payable and the factum of non-payment or delayed payment even by one day after the date of maturity constitutes default in unequivocal terms.

Secondly, the NCLT while referring to decision held by the Hon’ble NCLAT in State Bank of India Vs. Athena Energy Ventures Private Limited observed that the Financial Creditor can proceed against the Principal Borrower as well as Corporate Guarantors simultaneously.

So far as the objection with regard to the loan documents not been sufficiently stamped, it was notable that the question of insufficiently stamped loan documents was not relevant while adjudicating upon the admissibility of a Petition under Section 7 of the code, noted the NCLT.

With regard to the objection that NCLT had no jurisdiction in the present subject matter, the NCLT was of the considered view that since the Registered office of the Corporate Debtor is in Mumbai this Tribunal has territorial jurisdiction over the present subject matter by the virtue of Section 60(1) of the Code. A reference was made in Excel Metal Processors Limited Vs. Benteler Trading international GMBH and anr. (2019) wherein the Hon’ble NCLAT held that, the Adjudicating Authority has a territorial jurisdiction over the place where the registered office of the Corporate person is located.

As a result of the ongoing discussion, the Petitioner was able to establish the necessary ingredient of there being a financial debt and accordingly, the Petition under Section 7 of the Code was admitted.