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NCLT: Joint application by Financial Creditors to meet threshold limit of Rs. 1 crore allowed

Cause Title : Hi-tech Designs Pvt Ltd & S. K. Finserve Private Limited vs Sri Sai Car Sales Private Limited, Company Petition No. C.P. (IB)/278(KB)2022

Date of Judgment/Order : 12/07/2023

Corum : Smt. Bidisha Banerjee, Hon’ble Member (Judicial) & Shri Balraj Joshi, Hon’ble Member (Technical)

Citied: 

  1. Indus Biotech Private Limited v. Kotak India Venture (Offshore) Fund, (2021) 6 SCC 436
  2. Innoventive Industries Ltd. v. ICICI Bank, 1 SCC 407: MANU/SC/1063/2017 (Para 27, 18, 29 and 30)
  3. Vishnu Oil Mill Private Ltd. v. Union of India, 2022 (4) RLW 3184 (Raj.)
  4. Lepakshi Knowledge Hub Pvt. Ltd. v. Global Emerging Markets India Ltd.
  5. K. Paramasivam v. The Karur Vysya Bank Ltd. 2022 SCC Online SC 1163

Background

Hi-tech Designs Pvt Ltd, the financial creditor no. 1 (FC1) had provided a loan of Rs. 1 cr to the Corporate Debtor (CD) against which the CD had issued a deed of guarantee and other documents confirming their liability. An amount of Rs. 87,17,049/- together with interest stands due to the FC1.

As for S. K. Finserve Private Limited, the financial creditor no. 2 (FC2), the Corporate Debtor (CD) had provided corporate guarantee to secure the dues of Union Motors, a partnership firm amounting to Rs. 73,15,327/- together with interest stands due to the FC2.

When the borrowers defaulted, the Financial Creditors after completing all formalities jointly filed application under Section 7 of the Insolvency and Bankruptcy Code, 2016. The Total Debt of the Corporate Debtor towards the Financial Creditors combined to Rs. 1,60,32,376/- together with the interest.

Judgment

The NCLT admitting the application ex-parte held that Section 7 of the IBC as amended vide Gazette Notification dated 05.06.2020, admits no other interpretation except that a group of financial creditors can converge and join hands to touch the financial limit of Rs. 1 crore stipulated under Section 7 so as to initiate a CIRP under the IBC.

The NCLT further reiterated the following points:-

1) in order to trigger an application there should be in existence four factors: (i) there should be a 'debt' (ii) 'default' should have occurred (iii) debt should be due to 'financial creditor' and (iv) such default which has occurred should be by a 'corporate debtor
2) the financial transaction ought to be in the nature of 'Debt'. An existing obligation to pay a sum of money is the sine qua non of a 'Financial Debt
3) the liability of the guarantor is co-extensive with that of the Principal Borrower. The judgment in Laxmi Pat Surana (supra), rendered by a three-Judge Bench of this Court is binding on this Bench. It was open to the Financial Creditor to proceed against the guarantor without first suing the Principal Borrower.

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