M.K. Ashraf v. State Bank of India and Others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR. JUSTICE AMIT RAWAL** **FRIDAY, THE 14TH DAY OF FEBRUARY 2020 / 25TH MAGHA, 1941** ## **WP(C).No.4186 OF 2020(W)** ## **PETITIONER/S:** **M.K.ASHRAF, AGED 65 YEARS S/O.MUHAMMED KUNJU, ADHILS HOUSE, KANNANALLOOR P.O., KOLLAM-691 586.** **BY ADV. SRI.R.KISHORE (KALLUMTHAZHAM)** ## **RESPONDENT/S:** **1 STATE BANK OF INDIA, SARB, 1ST FLOOR, LMS COMPOUND, NEAR MUSEUM WEST GATE, VIKAS BHAVAN P.O., THIRUVANANTHAPURAM-695 033. 2 BRANCH MANAGER, STATE BANK OF INDIA, KANNANALOOR, KOLLAM-691 586. 3 BINU KALPAKAM, ADVOCATE COMMISSIONER, KODIYATTU BUILDING, OPP.A.M.HOSPITAL, KARUNAGAPALLY, KOLLAM-690 518.** ## **OTHER PRESENT:** ## **ADV. JAWAHAR JOSE,SC** **THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 14.02.2020, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **WP(C).No.4186 OF 2020(W)** **2** ## **AMIT RAWAL, J. ================== W.P.(C) No. 4186 of 2020 ================== Dated this the 14[th] day of February, 2020** ## **JUDGMENT** The petitioner an Ex NRI, promoter and a guarantor to the principal borrower, has approached this court challenging the action of the Bank under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), in view of the fact that order under section 14 of the Insolvency and Bankruptcy Code, 2016 has been issued fixing a time line moratorium. Section 60 of the aforementioned Code prohibits the Bank to initiate the proceedings against the personal debt. Since, the bank cannot initiate the steps to recover the amount under SARFAESI Act, in view of the moratorium issued under Section 14 of the Code against the principal borrower, impugned action has been taken against the property belonging to the petitioner being personal guarantor. In view of provision **WP(C).No.4186 OF 2020(W)** **3** of Section 60(1) of the Code of 2016, if any action initiated under SARFAESI Act is without jurisdiction, the remedy is to approach the National Company Law Tribunal. 2. The learned Counsel for the bank submits that the proposition as scouted out is already covered by the judgment of the Honourable Supreme Court in **State Bank of India v. V. Ramakrishnan and Another** **[(2018) 17 SCC 394],** holding that Bank is not prevented from initiating the proceedings under the SARFAESI Act against the personal guarantor, de hors moratorium under Section 14. 3. Having heard the learned counsel for the parties, I am of the view that the proposition as attempted to be build up during the course of hearing is not able to cut ice to bring the case within the realm of Article 226 of the Constitution of India. 4. It would be relevant to mention paragraphs 20, 21, 22, 24 of the judgment referred in **State Bank of India** (supra). **WP(C).No.4186 OF 2020(W)** **4** 20. Section 14 refers to four matters that may be prohibited once the moratorium comes into effect. In each of the matters referred to, be it institution or continuation of proceedings, the transferring, encumbering or alienating of assets, action to recover security interest, or recovery of property by an owner which is in possession of the corporate debtor, what is conspicuous by its absence is any mention of the personal guarantor. Indeed, the corporate debtor and the corporate debtor alone is referred to in the said section. A plain reading of the said section, therefore, leads to the conclusion that the moratorium referred to in Section 14 can have no manner of application to Personal guarantors of a corporate debtor 21. However, Section 2(e) and Section 60 are strongly relied upon by the learned counsel for the respondents as, according to them, the Code will apply personal guarantors of corporate debtors, and by Section 60, proceedings against such personal guarantors will show that such moratorium extends to the guarantor as well. 22. We are afraid that such arguments have to be turned down on a careful reading of the sections relied upon. Section 60 of the Code, in sub-section (1) thereof, refers to insolvency resolution and liquidation for both corporate debtors and personal guarantors, the adjudicating authority for which shall be the **WP(C).No.4186 OF 2020(W)** **5** National Company Law Tribunal, having territorial jurisdiction over the place where the registered office of the corporate person is located. This sub-section is only important in that it locates the Tribunal which has territorial jurisdiction in insolvency resolution processes against corporate debtors. So far as personal guarantors are concerned, we have seen that Part III has not been brought into force, and neither has Section 243, which repeals the Presidency Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920. The net result of this is that so far as individual personal guarantors are concerned, they will continue to be proceeded against under the aforesaid two Insolvency Acts and not under the Code. Indeed, by a Press Release dated 28-8-2017, the Government of India, through the Ministry of Finance, cautioned that Section 243 of the Code, which provides for the repeal of the said enactments, has not been notified till date, and further, that the provisions relating to insolvency resolution and bankruptcy for individuals and partnerships as contained in Part III of the Code are yet to be notified. Hence, it was advised that stakeholders who intend to pursue their insolvency cases may approach the appropriate authority/court under the existing enactments, instead of approaching the Debts Recovery Tribunals. 24. The scheme of Sections 60(2) and (3) is **WP(C).No.4186 OF 2020(W)** **6** thus clear - the moment there is a proceeding against the corporate debtor pending under the 2016 Code, any bankruptcy proceeding against the individual personal guarantor will, if already initiated before the proceeding against the corporate debtor, be transferred to the National Company Law Tribunal or, if initiated after such proceedings had been commenced against the corporate debtor, be filed only in the National Company Law Tribunal. However, the Tribunal is to decide such proceedings only in accordance with the Presidency Towns Insolvency Act, 1909 or the Provincial Insolvency Act, 1920, as the case may be. It is clear that sub-section (4), which states that the Tribunal shall be vested with all the powers of the Debts Recovery Tribunal, as contemplated under Part III of this Code, for the purposes of sub-section (2), would not take effect, as the Debts Recovery Tribunal has not yet been empowered to hear bankruptcy proceedings against individuals under Section 179 of the Code, as the said Section has not yet been brought into force. Also, we have seen that Section 249, dealing with the consequential amendment of the Recovery of Debts Act to empower Debts Recovery Tribunals to try such proceedings, has also not been brought into force. It is thus clear that Section 2(e), which was brought into force on 23-11-2017 would, when it refers to the application of the Code to a personal **WP(C).No.4186 OF 2020(W)** **7** guarantor of a corporate debtor, apply only for the limited purpose contained in Sections 60(2) and (3), as stated hereinabove. This is what is meant by strengthening the Corporate Insolvency Resolution Process in the Statement of Objects of the Amendment Act, 2018. On perusal of the aforementioned findings, it is axiomatic that the Bank is not denuded of its powers to initiate the recovery proceedings under the SARFAESI Act against the petitioner. No ground of interference is made out. The writ petition is accordingly dismissed. **Sd/-** **AMIT RAWAL** **Judge** MIN **WP(C).No.4186 OF 2020(W)** **8** ## **APPENDIX** ## **PETITIONER'S/S EXHIBITS:** **EXHIBIT P1** **THE TRUE COPY OF THE ORDER OF THE NATIONAL COMPANY LAW TRIBUNAL DATED 28TH NOVEMBER 2019 NUMBERED AS IBA/45/KOB/19.** **EXHIBIT P2 THE TRUE COPY OF THE NOTICE ISSUED BY THE DRT DATED 16TH OCTOBER 2019 NUMBERED AS OA561/2019.** **EXHIBIT P3 THE TRUE COPY OF THE ADVOCATE NOTICE ISSUED BY THE 3RD RESPONDENT DATED 30.01.2020 IN MC NO.875/2019.**