TEAM CODE:

17TH SURANA & SURANA NATIONAL CORPORATE LAW MOOT COURT

COMPETITION 2019

BEFORE THE HON’BLE SUPREME COURT OF INDIA

AT NEW DELHI

REVIEW APPLICATION NO. 2 /2019

(FILED UNDER ORDER XLVII RULE 1 OF CPC)

AGAINST

CIVIL APPEAL NOS. 10000 & 10001 OF 2018

IN MATTER OF ORDER XLVII RULE 1 OF CODE OF CIVIL PRODECURE, 1908

AND
SECTION 2,3,7,14,234,235,238 & 238-A OF THE INSOLVENCY AND BANKRUPTCY
CODE, 2016
AND
FOREIGN EXCHNAGE MANAGEMENT ACT, 1999
AND
RBI GUIDENLINES

Shareholders of Soft Solutions Pvt. Ltd………...…………………..…...….Review Applicant

v.
First to Lend Banking Ltd………………………………………………………..Respondent

UPON SUBMISSION TO THE HON’BLE CHIEF JUSTICE AND HIS COMPANION JUSTICES OF THE
HON’BLE SUPREME COURT OF INDIA

MEMORIAL ON BEHALF OF THE APPLICANT

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 TABLE OF CONTENTS

List of Abbreviations i

Index of Authorities ii
Statement of Jurisdiction v
Statement oF Facts vi
Issues Raised vii
Summary of Arguments viii
Arguments Advanced 1
ISSUE I: THE REVIEW PETITION FILED BEFORE THE SUPREME COURT IS MAINTAINABLE 1
[1.1] Grounds for Review 1

ISSUE II: THE SUPREME COURT OUGHT TO HAVE HELD THAT THE PERSONAL GUARANTORS
ARE ENTITLED FOR MORATORIUM BENEFIT ESPECIALLY WHEN AN AMENDMENT TO THAT
EFFECT CAME INTO FORCE ONLY FROM 06.06.2018 BY SUBSTITUTING SUBSECTION (3) TO
SECTION 14 AND THE ARGUMENT OF THE BANK THAT A SUBSTITUTION WILL ALWAYS HAVE
RETROSPECTIVE EFFECT SHOULD HAVE BEEN NEGATED. 2
[2.1] Supreme Court ought to have held that Personal Guarantors are entitled for the benefit of
moratorium under section 14 (3) of the code 2
[2.2] Section 14 IBC and S. 140 of the Indian Contract Act, 1872 4
[2.3] Amendment to this cannot be Applied retrospectively and argument to this should be negated. 5

ISSUE III: THE SUPREME COURT OUGHT TO HAVE LAID DOWN THE LAW ON MERITS THAT THE
BANK COMMITTED AN ERROR IN DECLARING THE LOANS OF THE COMPANIES AS NPA AT
MUCH EARLIER STAGE AGAINST THE RBI GUIDELINES. 6
[3.1] An Objective Criteria should have been followed by the bank vis-à-vis declaration of the loan as
NPA 7
[3.2] Classification should not be based on temporary deficiencies. 8

Issue IV: THE BANK FUNDAMENTALLY ERRED IN PROCEEDING AGAINST THE INDIAN COMPANY
AND THE PERSONAL GUARANTORS TO THE US COMPANY WHO ONLY STOOD AS GUARANTORS
WITHOUT ASKING ITS US BANK TO TAKE ACTION AGAINST THE US COMPANY UNDER THE US
LAWS IN THE US. 10
[4.1] Foreign Debtor is not recognised in the Indian Code 10
[4.2] India does not have a cross border regime 12

Issue V: THE SUPREME COURT OUGHT TO HAVE CONSIDER THAT PART III OF THE IBC HAS
NOT YET BEEN NOTIFIED AND UNTIL SUCH TIME THE VALUABLE RIGHTS OF THE PERSONAL
GUARANTORS WHICH ARE ENSHRINED FROM SECTION 94 TO 101 OF THE CODE SHOULD HAVE
BEEN READ INTO SECTION 14 ESPECIALLY WHEN SECTION 60 OF THE CODE PERMITS THE
PERSONAL GUARANTORS TO AVAIL THE BENEFIT OF MORATORIUM. 14
[5.1] Section 14 of the code has to be interpreted with consonance of Part III of the Code. 14
[5.2] Section 60 r/w 14 of the code along with Part III of the Code. 15

PRAYER ix

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LIST OF ABBREVIATIONS

ABBREVIATION ACTUALTERM

AIR All India Reporter

Anr. Another

Bom Bombay

Cal. Calcutta

Co. Company

Ed. Edition

FEMA Foreign Exchange Management Act

HC High Court

IBC Insolvency and Bankruptcy Code

Ltd Limited

Mad Madras

NCLAT National Company Law Appellate Tribunal

NCLT National Company Law Tribunal

No. Number

Ors. Others

Pvt Private

RBI Reserve Bank of India

SARFAESI Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest
SC Supreme Court

SCC Supreme Court Cases

UOI Union of India

v. Versus

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INDEX OF AUTHORITIES

CASES

1. A.R. Antulay v. R.S. Nayak, (1988) 2 SCC 602 .................................................................... 8

2. A.R. Antulay v. R.S. Nayak, (1988) 2 SCC 602. ................................................................... 1
3. Bank of Bihar Ltd. v. Damodar Prasad and Another, 1969 1 SCR 620. ............................. 4
4. Bindubashini Roy Chowdhury v. Secretary of State for India, AIR 1924 Cal 774. ............. 1
5. Dresser Rand P. Ltd. v. Addl. CI, [2011] 47 SOT 423/13 taxmann.com 82 (Mum.). .......... 8
6. F. S. Saggu v. Union of India, [2015] 131 SCL 8 (Delhi). .................................................. 8
7. Gibbs & Sons v. Societe Industrielle Des Metaux, [1890] 2 QBD 399 ............................. 13
8. ICICI Bank Ltd. v. Vista Steel (P.) Ltd, [2018] 95 taxmann.com 265 (NCL-AT).............. 15
9. In Re, Pulborough Parish School Board Election, Bourke V. Nutt (1894) 1 QB 725. ........ 6
10. Ionic Metalliks v. Union of India, [2014] 49 taxmann.com 222 (Gujarat). ........................ 7
11. M/s. Indigene Pharmaceuticals Jubilee Hills, Hyderabad v. ACIT, Cir-2(1) Hyderabad,
2014 SCC OnLine ITAT 11455. ........................................................................................... 8
12. Monnet Ispat & Energy Ltd. V. Union of Indian & Ors,. (2012) 11 SCC 1 ........................ 6
13. Northway Spaces Ltd. v. SICOM Ltd, [2018] 91 taxmann.com 78 (NCLT - Ahd.). .......... 15
14. Parvateneni Bhushayya v. Potluri Suryanarayana, AIR 1944 Mad. 195. ........................... 4
15. Rita Bagga & Others v. Union of India and others, (2015) 111 ALR 190: 2015 SCC
OnLine All 7562. .................................................................................................................. 8
16. Sahara India Financial Corpn. Ltd v. Deputy Commissioner of Income-tax, Central
Circle -6, New Delhi, [2014] 41 taxmann.com 251 (Delhi - Trib.)/ [2014] 148 ITD 336
(Delhi - Trib.). ...................................................................................................................... 8
17. Sanjeev Shriya v. State Bank of India, 2017 SCC OnLine All 2717. ................................... 3
18. Standard Charter Bank v. Essar Steel India Ltd., C.P. No. (I.B.) 39/7/NCLT/AHM/2017. 9
19. State Bank of India v. D.S. Rajendra Kumar, [2018] 94 taxmann.com 60 (NCL-AT) ...... 15
20. State Bank of India v. D.S. Rajendra Kumar, [2018] 94 taxmann.com 60 (NCL-AT). ..... 15
21. State Bank of India v. Mr V. Ramakrishna & M/s. Veesons Energy Systems Pvt. Ltd., Civil
Appeal No. 3595 and 4553 of 2018. .................................................................................... 3
22. State Bank of India v. V. Ramakrishnan, [2018] 149 SCL 107 (SC). ................................ 14

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23. State of Kerala v. Mar Appraem Kuri Co. Ltd., 114 SCL 47 (SC) .................................... 14
24. Swiss Ribbons Pvt. Ltd. & Anr v. Union of Union & Anr, W.P Civil No. 99/2018. ............ 9
25. Vodafone v. Union of India, (2012) 6 SCC 613. ................................................................ 13

STATUTES

1. Foreign Exchange Management (Transfer or Issue of Any Foreign Security)

(Amendment) Regulations, 2004
2. Foreign Exchange Management Act, 1999
3. The Companies Act, 2013, No. 18, Acts of Parliament, 2013
4. The Indian Contract Act, 1872, No. 9, Acts of Parliament, 1872.
5. The Insolvency and Bankruptcy Code, 2016
6. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security
Interest, 2002

OTHER AUTHORITIES

1. Clause 4, Master Circular - Prudential norms on Income Recognition, Asset Classification

and Provisioning pertaining to Advances, (July 2015),
https://m.rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx?id=9908
2. Master Circular - Prudential norms on Income Recognition, Asset Classification and
Provisioning pertaining to Advances, (July 2015),
https://m.rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx?id=9908.
3. Overview of Cross-Border Insolvency Framework for Corporate Debtors under the
Insolvency and Bankruptcy Code, 2016, Ministry of Corporate Affairs, Government of
India, (June 2018),
http://www.mca.gov.in/Ministry/pdf/PublicNoiceCrossBorder_20062018.pdf
4. Report of the Insolvency Law Committee, Ministry of Corporate Affairs, Government of
India, (Mar. 2018), http://www.mca.gov.in/Ministry/pdf/ILRReport2603_03042018.pdf.

ARTICLES

1. Justice D.R. Dhanuka, Review Petition is Maintainable in Respect of Orders Passed

Under Section 37 of the Arbitration and Conciliation Act, 1996, (2014) 7 SCC J-22. ....... 1
2. Keith D. Yamauchi, Should Reciprocity be a Part of UNCITRAL Model Cross Border
Insolvency Law?, 16 International Insolvency Review, pp. 145-179 (2007). ................... 12

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ONLINE WEBSITES

1. LexisNexis (www.lexisnexis.com)
2. Manupatra (www.manupatra.com)
3. SCCOnline (www.scconline.in)
4. The Bar Council of India (http://www.barcouncilofindia.org)
5. Taxmann (www.taxmann.com)

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STATEMENT OF JURISDICTION

The Applicant has invoked the jurisdiction of this Hon’ble Court under Article 137 of The

Constitution of India, 1949 and Order XLVII of Code of Civil Procedure:

137. Review of judgments or orders by the Supreme Court

“Subject to the provisions of any law made by Parliament or any rules made under

Article 145, the Supreme Court shall have power to review any judgment pronounced

or order made by it.”

Order XLVII of Code of Civil Procedure, 1908: Review

1. Application for review of judgement

“(1) Any person considering himself aggrieved-

(a) by a decree or order from which an appeal is allowed, but from no appeal

has been preferred,

(b) by a decree or order from which no appeal is allowed, or

(c) by a decision on a reference from a Court of Small Causes,

and who, from the discovery of new and important matter or evidence which, after the

exercise of due diligence was not within his knowledge or could not be produced by

him at the time when the decree was passed or order made, or on account of some

mistake or error apparent on the face of the record or for any other sufficient reason,

desires to obtain a review of the decree passed or order made against him, may apply

for a review of judgement to the Court which passed the decree or made the order.”

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STATEMENT OF FACTS

Soft Solutions Pvt. Ltd. is an Indian company with the equity

shareholding as 25% for each promoter-cum-shareholder. The

INTRODUCTION company and its shareholders set up a US subsidiary with a share

AND pattern of 52% by holding company and 48% by directors of the

BACKGROUND holding company. Due to economic meltdown, the Indian company

approached FLB India, a subsidiary of a US Bank, for expansion of
the Indian and US company. The loan was granted by the bank
directly to the Indian company and via a letter of credit to the US
company, subject to the personal guarantee of the Directors.
30.04.11: Loans disbursed by FLB as per agreement dated same day,
with maturity period of three years.
30.04.14: Both the companies defaulted in payment of principal and

CHRONOLOGICAL interest amounts.

LIST OF EVENTS 31.10.14: FLB India declared the loans granted to Indian company
and dues on behalf of US company as NPAs. Notice sent for payment
of Indian company’s debt under SARFAESI. Directors objected to
the notice, bank failed to reply to the objection in time; writ petition
filed and stay order was given to the notice and proceedings under
SARFAESI.
30.11.14: FLB sent notice under SARFAESI for repayment of dues
of the US subsidiary; guarantors again objected but FLB replied well
within time and initiated proceedings under SARFAESI. Indian
company agreed to pay 25% of the dues of US company within 18
months. They paid some portion but failed to pay the whole amount.
Section 7 petitions were filed by FLB before NCLT to initiate
insolvency proceedings on Feb1, 2018. Individual guarantors

ACTION TAKEN impleaded themselves as respondents in the case. NCLT declared

BY THE PARTIES CIRP from 01.03.18. Appeal was made to the NCLAT. Against the
orders of NCLAT, bank went to the SC. Convinced that certain
aspects were not considered, review petition was filed before SC.

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ISSUES RAISED

~ ISSUE I ~

THE REVIEW PETITION FILED BEFORE THE SUPREME COURT IS

MAINTAINABLE

~ISSUE II~

THE SUPREME COURT OUGHT TO HAVE HELD THAT THE PERSONAL

GUARANTORS ARE ENTITLED FOR MORATORIUM BENEFIT ESPECIALLY
WHEN AN AMENDMENT TO THAT EFFECT CAME INTO FORCE ONLY FROM
06.06.2018 BY SUBSTITUTING SUBSECTION (3) TO SECTION 14 AND THE
ARGUMENT OF THE BANK THAT A SUBSTITUTION WILL ALWAYS HAVE
RETROSPECTIVE EFFECT SHOULD HAVE BEEN NEGATED

~ ISSUE III ~

THE SUPREME COURT OUGHT TO HAVE LAID DOWN THE LAW ON MERITS
THAT THE BANK COMMITTED AN ERROR IN DECLARING THE LOANS OF
THE COMPANIES AS NPA AT MUCH EARLIER STAGE AGAINST THE RBI
GUIDELINES
~ ISSUE IV ~

THE BANK FUNDAMENTALLY ERRED IN PROCEEDING AGAINST THE INDIAN

COMPANY AND THE PERSONAL GUARANTORS TO THE US COMPANY WHO
ONLY STOOD AS GUARANTORS WITHOUT ASKING ITS US BANK TO TAKE
ACTION AGAINST THE US COMPANY UNDER THE US LAWS IN THE US.

~ ISSUE V ~

THE SUPREME COURT OUGHT TO HAVE CONSIDER THAT PART III OF THE
I.B.C. HAS NOT YET BEEN NOTIFIED AND UNTIL SUCH TIME THE VALUABLE
RIGHTS OF THE PERSONAL GUARANTORS WHICH ARE ENSHRINED FROM
SECTION 94 TO 101 OF THE CODE SHOULD HAVE BEEN READ INTO SECTION
14 ESPECIALLY WHEN SECTION 60 OF THE CODE PERMITS THE PERSONAL
GUARANTORS TO AVAIL THE BENEFIT OF MORATORIUM.

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SUMMARY OF ARGUMENTS

Issue I: It is humbly contended that the review petition filed before this Hon’ble Court by the

personal guarantors is maintainable. This is because this Hon’ble Court has respectfully erred

in not discussing the merits of the case, due to which a manifest wrong has been done. In the

previous judgement, certain aspects were not rightly appreciated by the Court.

Issue II: It is humbly contended that this Hon’ble Court ought to have entitled the personal

guarantors to the benefit of moratorium, as can be established from the interpretation of

Sections 14 & 31 of the Code. Moreover, the amendment to the Code, cannot be applied

retrospectively and the argument for the same should be negated.

Issue III: It is contended before this Hon’ble Court that it should have laid down the law on

merits as to declaring the loans as NPA at an earlier stage, against the RBI guidelines, which

the Bank did. An objective criterion should be followed by the banks vis-à-vis the declaration

of loans as NPA, and the classification of the same should not be done based upon temporary

deficiencies.

Issue IV: It is humbly contended before this Hon’ble Court that the bank fundamentally erred

in proceeding against the Indian company and personal guarantors to the US company,

without first taking action in the US, as neither a foreign debtor, nor a guarantor to a foreign

debtor is not recognised under the Code. Furthermore, the Code does not grant access to

foreign assets and India does not have a cross border regime.

Issue V: It is contended before this Hon’ble Court that this Court ought to have had considered

Part III of the IBC, and read it with Section 14 of the Code as it contains major rights of the

Personal Guarantors. Furthermore, Sections 94 to 101, when contrasted with Section 14,

provide the rights of the same nature. Though Part III of the Constitution has not yet been

notified, the power vested in the Adjudicating Authority is derived from Part III of the Code.

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ARGUMENTS ADVANCED

ISSUE I: THE REVIEW PETITION FILED BEFORE THE SUPREME COURT IS MAINTAINABLE
1. It is humbly contended before this Hon’ble Court that the review petition filed before this

Hon’ble Court by the personal guarantors is maintainable. The power of the Supreme Court to

review its own judgements is elaborated in the Article 137 of the Indian Constitution, which

has to be read with the provisions of any law made by the Parliament or any rule under Article

145 of the Constitution.1 The Order XVII, Rule 1(1) of the Code of Civil Procedure, 1908 talks

about when a civil review petition can be moved in the Court.2 According to Order XVII, Rule

1(1), any person aggrieved by a decree or order from which no appeal is allowed, can file a

petition for the review of the decree passed or order made against them on the basis of any

sufficient reason.3

[1.1] GROUNDS FOR REVIEW

2. It is humbly submitted before this Hon’ble Supreme Court that, it has respectfully erred by not

granting moratorium to the Personal Guarantors and applying the amendment to Section 14(3)

retrospectively with respect to Insolvency and Bankruptcy Code (hereinafter, ‘IBC’).

3. The Hon’ble Supreme Court, respectfully erred in recognising that, since a new section with a

new implication is being introduced, it has to be read only prospectively.

4. The Hon’ble Supreme Court ought to have decided on the contention of the personal guarantors

that the bank had violated the RBI Guidelines by early declaration of the loan as Non-

Performing Assets (hereinafter ‘NPA’). The Supreme Court ought to have decided on the

contention of cross-border insolvency, where the debtor and the bank are of foreign origin.

1
A.R. Antulay v. R.S. Nayak, (1988) 2 SCC 602.

2
Justice D.R. Dhanuka, Review Petition is Maintainable in Respect of Orders Passed Under Section 37 of the
Arbitration and Conciliation Act, 1996, (2014) 7 SCC J-22.

3
Bindubashini Roy Chowdhury v. Secretary of State for India, AIR 1924 Cal 774.

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5. It is humbly submitted before this Hon’ble Supreme Court that the present petition requires

this Court to delve into the merits in order to do complete justice to the parties.

ISSUE II: THE SUPREME COURT OUGHT TO HAVE HELD THAT THE PERSONAL
GUARANTORS ARE ENTITLED FOR MORATORIUM BENEFIT ESPECIALLY WHEN AN
AMENDMENT TO THAT EFFECT CAME INTO FORCE ONLY FROM 06.06.2018 BY
SUBSTITUTING SUBSECTION (3) TO SECTION 14 AND THE ARGUMENT OF THE BANK THAT
A SUBSTITUTION WILL ALWAYS HAVE RETROSPECTIVE EFFECT SHOULD HAVE BEEN
NEGATED.
6. It is humbly contended before this Hon’ble Supreme Court that (2.1) Supreme Court ought to have held

that Personal Guarantors are entitled for the benefit of moratorium under section 14 (3) of the code;

(2.2) Sec. 14 IBC and Sec. 140 of the Indian Contract Act, 1872; (2.3) Amendment to this cannot be

Applied retrospectively and argument to this should be negated.

[2.1] SUPREME COURT OUGHT TO HAVE HELD THAT PERSONAL GUARANTORS ARE
ENTITLED FOR THE BENEFIT OF MORATORIUM UNDER SECTION 14 (3) OF THE CODE
7. It is humbly contended before this Hon’ble Court that the purpose of the moratorium includes keeping

the corporate debtor's assets together during the Corporate Insolvency Resolution Process (hereinafter,

‘CIRP’) and facilitating orderly completion of the processes as envisaged. Thus, the intent of the code

does not appear to be to debar only those suits or proceedings which affect the assets of the corporate

debtor, as these appear to be only one of the components that is barred; the second must be the assets

of the personal guarantors.4

[2.1.1] The Court also ought to have considered the emphasis on Section 31 of the Code

8. Section 31 of the code which inter alia provides that once a resolution plan as approved by the

committee of creditors takes effect, it shall be binding on the corporate debtor as well as the personal

guarantor.

4
Report of the Insolvency Law Committee, Ministry of Corporate Affairs, Government of India, (Mar. 2018),
http://www.mca.gov.in/Ministry/pdf/ILRReport2603_03042018.pdf.

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9. The Allahabad High Court in Sanjeev Shriya v. State Bank of India,5 took the view

that, moratorium period applies to enforcement of a guarantee against a personal guarantor to

the debt.

10. The purpose of Sec. 14 is not to create charge on the property under debt. The purpose is to provide a

cooling off period to the Debtor. The Personal Guarantor, in case his personal property has to be sold

to realise the portion of the debt outstanding against the Corporate Debtor, must be provided with the

rights of the Creditors against the Corporate Debtor as they are now in the shoes of the creditors.

Therefore, a charge is automatically created on the property of the Corporate Debtor, which is against

the purpose and object of the moratorium and it violates Section 14(1) (b) of IBC.6

11. Moreover, relying on the provisions of Section 30 read with Section 31 of the IBC Code related to the

approval of the resolution plan, the NCLAT has held that

“From the aforesaid provisions, it is clear that ‘Resolution Plan’ if approved by the ‘Committee of

Creditors’ under sub-section (4) of Section 30 and if the same meets the requirements as referred to in

sub-section (2) of Section 30 and once approved by the ‘Adjudicating Authority’ is not only binding on

the Corporate Debtor’, but also on its employees, members, creditors, guarantors and other

stakeholders involved in the ‘Resolution Plan’, including the ‘Personal Guarantor.”

12. Thus, since the resolution plan of the corporate debtor binds the personal guarantor, the moratorium

should also apply to such personal guarantor.

[2.1.2] The interpretation of Sec 14 and 31 of the code

13. The NCLT Chennai7 came to the view that, as can be seen from the provisions of Section 14(1)(b) of

the Code8, the moratorium prohibits transferring, encumbering, alienating or disposing of by the

5
Sanjeev Shriya v. State Bank of India, 2017 SCC OnLine All 2717.

6
State Bank of India v. Mr V. Ramakrishna & M/s. Veesons Energy Systems Pvt. Ltd., Civil Appeal No. 3595
and 4553 of 2018.

7
State Bank of India v. Mr V. Ramakrishna & M/s. Veesons Energy Systems Pvt. Ltd., Civil Appeal No. 3595
and 4553 of 2018.

8
Section 14 (1) (b), The Insolvency and Bankruptcy Code, No. 31, Acts of Parliament, 2016.

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corporate debtor of any of its assets or any legal right or beneficial interest therein and that Section

31(1) of the Code,9 provides that if the Adjudicating Authority is satisfied that the Resolution Plan as

approved by the Committee of Creditors under sub-section 4 of Section 30 of the Code,10 as per

requirements as specified under sub-section 2 of Section 30, it shall, by order, approve of the

Resolution Plan which shall be binding on the corporate debtor and its employees, members, creditors,

guarantors and other stakeholders involved in the Resolution Plan.

[2.2] SECTION 14 IBC AND SEC. 140 OF THE INDIAN CONTRACT ACT, 1872

14. On the interpretation of Section 140 of the Indian Contract Act,11 and in light of, the NCLT Chennai

was of the opinion that in the event the guarantor fulfils his obligations for payment of outstanding debt

to the financial creditor, the guarantor will have every right on the assets of the corporate debtor, to the

extent he has paid the outstanding debt to the financial creditor. The NCLT was also of the view that if

the financial creditor,12 during CIRP and declaration of moratorium, is permitted to proceed against the

personal guarantor of the corporate debtor for recovery of the outstanding debt to the extent of the

personal guarantee given, then the security interest,13 if any, of the financial creditor, shall get

transferred to the personal guarantor, which will be in violation of Section 14(1) (b) of the Code.14

9
Section 31, The Insolvency and Bankruptcy Code, No. 31, Acts of Parliament, 2016.

10
Section 30, The Insolvency and Bankruptcy Code, No. 31, Acts of Parliament, 2016.

11
Section 140, The Indian Contract Act, 1872, No. 9, Acts of Parliament, 1872.

12
Parvateneni Bhushayya v. Potluri Suryanarayana, AIR 1944 Mad. 195.

13
Bank of Bihar Ltd. v. Damodar Prasad and Another, 1969 1 SCR 620.

14
Parvateneni Bhushayya v. Potluri Suryanarayana, AIR 1944 Mad. 195.

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[2.3] AMENDMENT TO THIS CANNOT BE APPLIED RETROSPECTIVELY AND ARGUMENT TO THIS

SHOULD BE NEGATED.

15. The judgment passed by the Hon’ble Supreme Court in State Bank of India v. V. Ramakrishnan and

Anr., 15 affirms the amendment to S.14 of IBC16 as retrospective even though enforced on 06.06.2018,

with no scope for a broader interpretation. It is submitted that S. 14 must be read with Part III of the

Code. The Court under S. 14(3)(b) divided personal guarantors as a separate class with regard to

moratorium. Therefore, it would be logical to put forth that the ‘clarification’ enforced as S. 14(3)(b),

in relation to the same debt, classifies personal guarantors as a separate class as compared to the

corporate debtor, but keeps the liability of the guarantor the same qua the debt. This classification made

is arbitrary and has no nexus with the objects sought to be achieved by the enactment i.e. IBC.

16. Furthermore, the Insolvency Law Committee by its report dated 26.03.201817, while enacting the

clarification to S.14, has heavily relied upon liability of the principal debtor and surety being co-

extensive, joint and several. However, one ought not to lose sight of the fact that IBC prescribes strict

timelines for completion of CIRP. Thus, the fear and concern that creditors would be left high and dry

for a prolonged period of time, if personal guarantors are also brought under the protective ambit of

S.14,18 is neither legally sound nor practical. The Committee’s findings on the interpretation to S.14 is

startling and full of self-contradictions, which have also been extensively quoted in State Bank of India

v. V. Ramakrishnan and Anr.19

17. From the above-findings of the Committee, it is clear that the court has narrowly interpreted S.14. The

Committee has clearly erred in keeping the personal guarantor’s out of S.14 inter-alia on a

15
State Bank of India v. Mr V. Ramakrishna & M/s. Veesons Energy Systems Pvt. Ltd., Civil Appeal No. 3595
and 4553 of 2018.

16
Section 14, The Insolvency and Bankruptcy Code, No. 31, Acts of Parliament, 2016.

17
Report of the Insolvency Law Committee, Ministry of Corporate Affairs, Government of India, (Mar. 2018),
http://www.mca.gov.in/Ministry/pdf/ILRReport2603_03042018.pdf.

18
Section 14, The Insolvency and Bankruptcy Code, No. 31, Acts of Parliament, 2016.

19
State Bank of India v. Mr V. Ramakrishna & M/s. Veesons Energy Systems Pvt. Ltd., Civil Appeal No. 3595
and 4553 of 2018.

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mere apprehension of abuse of the moratorium provision by the personal guarantors. However, having

said that such a clarification or clarified S.1420 has not only dampened the corporate environment but

would also lead to complexities in the CIRP where the creditor(s) has initiated separate legal

proceedings against the personal guarantor, in relation to the same debt.

[2.3.1] Retrospective application of the act

18. The purpose of moratorium is to keep the corporate debtor’s assets together during the

insolvency resolution process orderly completion of CIRP in Re, Pulborough Parish School

Board Election, Bourke V. Nutt,21 observed that "Every Statute, it has been said which takes

away or impair vested rights acquired under existing law, or creates a new obligation or

imposes a new duty, or attaches a new disability in respect of transactions already past, must

be presumed to be intended not to have a retrospective effect".

19. The same view point has been taken in Monnet Ispat & Energy Ltd. V. Union of Indian &

Ors.,22 where the Hon'ble Supreme court held that this principle operates until and unless there

is an express provision in the statute stating/indicating retrospective applicability of the

statutes.

ISSUE III: THE SUPREME COURT OUGHT TO HAVE LAID DOWN THE LAW ON MERITS THAT
THE BANK COMMITTED AN ERROR IN DECLARING THE LOANS OF THE COMPANIES AS NPA
AT MUCH EARLIER STAGE AGAINST THE RBI GUIDELINES.
20. It is humbly contended before the Hon’ble Supreme Court that while considering the case, it

ought to have laid down a law on merit that the bank committed an error in declaring the loans

of the companies as NPA at much earlier stage, contrary to the RBI guidelines and violated

certain norms which the bank should have adhered to: (3.1) An Objective Criteria should have

20
Section 14, The Insolvency and Bankruptcy Code, No. 31, Acts of Parliament, 2016.

21
In Re, Pulborough Parish School Board Election, Bourke V. Nutt (1894) 1 QB 725.

22
Monnet Ispat & Energy Ltd. V. Union of Indian & Ors,. (2012) 11 SCC 1.

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been followed by the bank vis-à-vis declaration of the loan as NPA; (3.2) Classification should

not be based on temporary deficiencies; (3.3) The requisite time frame was not followed by the

bank in declaring the loan as NPA.

[3.1] AN OBJECTIVE CRITERIA SHOULD HAVE BEEN FOLLOWED BY THE BANK VIS-À-VIS
DECLARATION OF THE LOAN AS NPA
21. The classification of assets has to be done on the basis of an objective criteria which would in

turn ensure a uniform and consistent application of the norms.23 Placing reliance on the

guidelines of the RBI, the bank did not follow the Guidelines of classifying the assets as NPA

on the contrary it was arbitrary in declaring loan as NPA without considering the fact that the

directors were ready to repay the amount.

[3.1.1] It is not the Prerogative of the Bank to decide the Capability of the borrower to repay

the loan.

22. The policy of the RBI has laid down guidelines for the repayment of the loan which must be

followed in its entirety. The current situation is based upon a temporary setback which the bank

has failed to recognise. The court on this point has held, “in our opinion, all the directors

cannot be held liable for the default in repayment of the loan which might be for varied reasons

beyond the control of such directors.”24 Ipso-facto, the guidelines of RBI consider the

prevailing economic situations while declaring a loan as NPA, which the bank has failed to

23
Master Circular - Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to
Advances, (July 2015), https://m.rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx?id=9908.

24
Ionic Metalliks v. Union of India, [2014] 49 taxmann.com 222 (Gujarat).

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adhere to25. The bank cannot step into the shoes of a businessman,26 and decide his capability

to repay the loan27 it has to be done according to RBI Guidelines.

[3.1.2] RBI Circulars are of the utmost importance and must be adhered to by the banks.

23. The banks are supposed to work on the Circulars of the RBI in an objective manner. 28 The

classification of the NPA, as per the aforesaid, has to be done in accordance with the directions

or guidelines relating to the asset classification issued by the RBI.29 In this regard, RBI has

issued a Master Circular known as ‘Master Circular-Prudential Norms on Income Recognition,

Asset Classification and Provisioning pertaining to Advances’,30 stating, "hence is given the

power to issue guidelines for classification of assets”31 and the banks must adhere to it.

[3.2] CLASSIFICATION SHOULD NOT BE BASED ON TEMPORARY DEFICIENCIES.

24. The classification of an asset as NPA should be based on the record of recovery. Banks should

not classify an advance account as NPA, merely due to the existence of some deficiencies

which are temporary in nature.32 With regards to the declaration of NPA, what is clear is that a

substandard asset would be NPA if it has remained as such for a period of twelve months. A

25
Sahara India Financial Corpn. Ltd v. Deputy Commissioner of Income-tax, Central Circle -6, New Delhi, [2014]
41 taxmann.com 251 (Delhi - Trib.)/ [2014] 148 ITD 336 (Delhi - Trib.).

26
Dresser Rand P. Ltd. v. Addl. CI, [2011] 47 SOT 423/13 taxmann.com 82 (Mum.).

27
M/s. Indigene Pharmaceuticals Jubilee Hills, Hyderabad v. ACIT, Cir-2(1) Hyderabad, 2014 SCC OnLine ITAT
11455.

28
A.R. Antulay v. R.S. Nayak, (1988) 2 SCC 602.

29
Rita Bagga & Others v. Union of India and others, (2015) 111 ALR 190: 2015 SCC OnLine All 7562.

30
Master Circular - Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to
Advances, (July 2015), https://m.rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx?id=9908.

31
F. S. Saggu v. Union of India, [2015] 131 SCL 8 (Delhi).

32
Master Circular - Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to
Advances, (July 2015), https://m.rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx?id=9908.

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person is a defaulter when an instalment or interest on the principal, remains overdue for more

than three months, after which its account is declared NPA,33 thereafter, a grace period of one

year has to be given to pay off the debts which was not ben given to the Company. The bank

has disregarded the fact that the company is going through a transition period at the backdrop

of the 2008 economic meltdown nor has it waited 12 months to convert the Standard assets to

sub-standard assets needs.34 SARFAESI proceedings were initiated a period of a one month

which was an insufficient time to declare the loan as NPA and proceed against the guarantor.

Moreover, before declaring an NPA, the market conditions and current status of the business

has to be looked into,35 which was neglected by the bank.

[3.3] THE REQUISITE TIME FRAME WAS NOT FOLLOWED BY THE BANK IN DECLARING THE

LOAN AS NPA.

25. The loans undertaken by the company was declared as NPA by the bank and before the NCLT

the bank has already admitted that the declaration was early. Further, it is pertinent to note that

The Insolvency Law Committee has in this regard has recommended that, “it was stated that

NPA must be increased from one year to three year, the committee also felt that the code was

relatively new legislation and therefore, it would be prudent to wait and allow industry

experience to emerge for a few years to come”. 36

26. Therefore, even the committee on insolvency laws has recognised that, with a new legislation

more time needs to be provided to companies before declaring their loans as NPA.

33
Swiss Ribbons Pvt. Ltd. & Anr v. Union of Union & Anr, W.P Civil No. 99/2018.

34
Clause 4, Master Circular - Prudential norms on Income Recognition, Asset Classification and Provisioning
pertaining to Advances, (July 2015), https://m.rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx?id=9908.

35
Standard Charter Bank v. Essar Steel India Ltd., C.P. No. (I.B.) 39/7/NCLT/AHM/2017.

36
Report of the Insolvency Law Committee, Ministry of Corporate Affairs, Government of India, (Mar. 2018),
http://www.mca.gov.in/Ministry/pdf/ILRReport2603_03042018.pdf.

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ISSUE IV: THE BANK FUNDAMENTALLY ERRED IN PROCEEDING AGAINST THE INDIAN
COMPANY AND THE PERSONAL GUARANTORS TO THE US COMPANY WHO ONLY STOOD AS
GUARANTORS WITHOUT ASKING ITS US BANK TO TAKE ACTION AGAINST THE US
COMPANY UNDER THE US LAWS IN THE US.
27. The bank fundamentally erred in proceeding against the Indian company and the personal

guarantors to the US company, who only stood as guarantors, without asking its US bank to

take action against the US company under the US laws in US since the loans were actually

disbursed in US in foreign currency, especially since the US company has assets with it and

the bank has a right to invoke the US bankruptcy law.

[4.1] FOREIGN DEBTOR IS NOT RECOGNISED IN THE INDIAN CODE

28. It is humbly submitted that the provisions of the IBC Code do not apply to the US company

which is registered under the US Companies Act. The provisions of the code clearly enunciate

that vide the Section 2, 37i.e. applicability of the code that it shall apply to the following kinds

of Companies:

(a) any company incorporated under the Companies Act, 2013 or under any previous company

law; (b) any other company governed by any special Act for the time being in force, except in

so far as the said provisions are inconsistent with the provisions of such special Act;

29. Further it is pertinent in this regard to see the definition clause of the Code which defines the

Corporate debtor. means a corporate person who owes a debt to any person;38 and a

30. "corporate person"39 means a company as defined in clause (20) of section 2 of the Companies

Act, 2013, a limited liability partnership, as defined in clause (n) of sub-section (1) of section

2 of the Limited Liability Partnership Act, 2008, or any other person incorporated with limited

37
Section 2, The Insolvency and Bankruptcy Code, No. 31, Acts of Parliament, 2016.

38
Section 3(8), The Insolvency and Bankruptcy Code, No. 31, Acts of Parliament, 2016.

39
Section 3(7), The Insolvency and Bankruptcy Code, No. 31, Acts of Parliament, 2016.

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liability under any law for the time being in force but shall not include any financial service

provider;

31. Section 2(20)40 of the 2013 Act defines the term “company” to mean “a company

incorporated under the Companies Act 2013 or any previous company law.”

32. Hence it is submitted that the U.S. Subsidiary of the Indian Company is not a company

registered under the Companies Act, 2013 or any previous companies act. Hence the provisions

of the Code do not apply to such company.

[4.1.1] Indian Guarantor to a foreign debtor is not recognised under the Code

33. “Personal guarantor"41 means an individual who is the surety in a contract of guarantee to a

corporate debtor; It is submitted that as the ambit of corporate debtor is defined above, the

personal guarantor to a foreign corporate debtor is not recognized under the ambit of the

Insolvency and Bankruptcy Code.

[4.1.2] No access to foreign assets under the Indian IBC

34. It is humbly submitted before This Hon’ble Court that under the IBC the creditors do not have

access to the foreign assets of the Guarantors. Section 18 of the IBC clearly states that the term

“assets” shall not include the assets of any Indian or Foreign subsidiary of the corporate debtor.

Section 18 of the Code talks about the Interim Resolution Plan but it keeps the assets of the

foreign subsidiary out of the reach of CIRP.42

35. Section 36 of the IBC talks about the liquidation estate i.e. For the purposes of liquidation, the

liquidator shall form an estate of the assets mentioned in sub-section (3), which will be called

40
Section 2(20), The Companies Act, 2013, No. 18, Acts of Parliament, 2013.

41
Section 3 (22), The Insolvency and Bankruptcy Code, No. 31, Acts of Parliament, 2016.

42
Section 18 Explanation (g), The Insolvency and Bankruptcy Code, No. 31, Acts of Parliament, 2016.

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the liquidation estate in relation to the corporate debtor. Vide Section 36 (4) (d) assets of any

Indian or foreign subsidiary of the corporate debtor shall not form part of the Liquidation

Estate.43

[4.2] INDIA DOES NOT HAVE A CROSS BORDER REGIME

36. For Indian Proceedings to be recognized abroad, the law of that country will be applicable.44

The present cross- border insolvency-related provisions under sections 234 and 235 of the

Insolvency and Bankruptcy Code, 2016 (IBC), which were included following the

recommendations of the Joint Committee on the Insolvency and Bankruptcy Code, 2015,

require bilateral agreements to be entered with other countries to administer the cross- border

ramifications of insolvency proceedings. This calls for the application of the doctrine of

reciprocity, whereby letters of request may be issued by the National Company Law Tribunal

(NCLT) or the authorized court to a foreign court or tribunal where the corporate debtor’s assets

are located. However, at present, India has not entered into any bilateral treaty with any other

nation to further the development of the same.

37. Finalising such bilateral treaties requires long term negotiations. In the present scenario, no

such bilateral treaty has been mentioned between the countries. Therefore, we can clearly infer

that, to enforce an insolvency law of a different country in a different country, requires the

existence of a treaty, “where multiple jurisdictions are involved, bilateral treaties of each

country will have to be invoked, which may create procedural or legal complexities.”45

43
Section 36 (4) (d), The Insolvency and Bankruptcy Code, No. 31, Acts of Parliament, 2016.

44
Keith D. Yamauchi, Should Reciprocity be a Part of UNCITRAL Model Cross Border Insolvency Law?, 16
International Insolvency Review, pp. 145-179 (2007).

45
Overview of Cross-Border Insolvency Framework for Corporate Debtors under the Insolvency and Bankruptcy
Code, 2016, Ministry of Corporate Affairs, Government of India, (June 2018),
http://www.mca.gov.in/Ministry/pdf/PublicNoiceCrossBorder_20062018.pdf.

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38. A company may operate in a foreign jurisdiction through local subsidiaries or branches/offices.

It may also have physical assets in such foreign jurisdiction. In the former case, each subsidiary

is a separate legal entity and the winding up/insolvency of the parent does not result in the

winding up/insolvency of the subsidiary.46

39. In the absence of such laws in India, and upon examination of the existing framework from the

perspective of Indian the Insolvency and Bankruptcy Code, 2016 (Code) does not have extra-

territorial effect. The Code also treats foreign and domestic creditors equally with respect to

insolvency proceedings under the Code. This was also the position with respect to the winding

up of companies in India.

40. Before the coming into force of the Code and under the Companies Act, 1956, the winding up

of an Indian company does not automatically mean that the foreign assets of the company are

the subject of a winding up petition. The assets of company are situated in US, the US courts

would first have to recognise the winding up order and then had discretion whether or not to

give the control of the assets to the foreign liquidator. Further, the US creditors of the company

can independently proceed against the assets of the company located in US.

41. As a short answer to the question posed, in the absence of a reciprocal obligation under US

Insolvency Act, 1986 or the UNCITRAL Model Law on Cross-Border Insolvency, American

courts will not recognise the sanctity of the Indian resolution process and a foreign creditor

whose relationship is governed by America law can independently proceed to enforce its debt

in US.

42. This law arises from the Court of Appeal decision in Gibbs & Sons v. Societe Industrielle Des

Metaux. 47 In which Lindley LJ that a party to a contract made and performed in England is not

46
Vodafone v. Union of India, (2012) 6 SCC 613.

47
Gibbs & Sons v. Societe Industrielle Des Metaux, [1890] 2 QBD 399.

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discharged from liability under such contract by a discharge in bankruptcy or liquidation under

the law of a foreign country.

43. The decision in Gibbs is also in consonance with the settled law that a winding up or

bankruptcy does not change the creditor’s rights but only the manner in which such rights are

enforced.

ISSUE V: THE SUPREME COURT OUGHT TO HAVE CONSIDER THAT PART III OF THE I.B.C.
HAS NOT YET BEEN NOTIFIED AND UNTIL SUCH TIME THE VALUABLE RIGHTS OF THE
PERSONAL GUARANTORS WHICH ARE ENSHRINED FROM SECTION 94 TO 101 OF THE CODE
SHOULD HAVE BEEN READ INTO SECTION 14 ESPECIALLY WHEN SECTION 60 OF THE CODE
PERMITS THE PERSONAL GUARANTORS TO AVAIL THE BENEFIT OF MORATORIUM.
44. It is humbly contended that Supreme Court ought to have considered Part III of the I.B.C.

which is not yet notified and read it into Section 14 of the IBC as they are the major rights of

the Personal Guarantors. The issue has been dealt with in a two-fold manner: (5.1) Section 14

of the code has to be interpreted with consonance of Part III of the Code. (5.2) Court has

interpreted Section 60 r/w 14 of the code along with Part III.

[5.1] SECTION 14 OF THE CODE HAS TO BE INTERPRETED WITH CONSONANCE OF PART III

OF THE CODE.

45. Sections 94 and 101, when contrasted with section 14, would show that rights provided by the

two parts are of the same nature. When an application is filed under Part III, an interim-

moratorium is applicable in respect of any debt due.48

46. In State of Kerala v. Mar Appraem Kuri Co. Ltd. the court has held that “a law 'made' by the

Legislature is a law on the statute book even though it may not have been brought into force.”49

47. Moreover irrespective of the date of enforcement of a Parliamentary or State enactment, a Bill

becomes an Act and comes on the Statute Book immediately on receiving the assent of the

48
State Bank of India v. V. Ramakrishnan, [2018] 149 SCL 107 (SC).

49
State of Kerala v. Mar Appraem Kuri Co. Ltd., 114 SCL 47 (SC).

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President or the Governor, as the case may be, which assent has got to be published in the

official gazette, For the purpose of interpretation, it is certainly open to the judiciary to read

section 14 with sections 94 and 101 even though they have not yet been brought into force.50

48. Under Section 14 of the IBC, in respect with the properties of the Corporate Debtor, it shall not

be read in a narrow manner and must be applied to the properties of the guarantors and

securities given by the guarantors51.

[5.2] SECTION 60 R/W 14 OF THE CODE ALONG WITH PART III OF THE CODE.

49. Though, Part III of the 'I&B Code,52' has not yet been notified, but the Adjudicating Authority

is vested with all the powers of the Debt Recovery Tribunal (Adjudicating Authority

under Part III) as contemplated under Part III,53 of the 'I&B Code,54 'for the purpose of sub-

section (2) as apparent from sub- section (4) of Section 60,55 of the 'I&B Code'.

50. It is humbly contended before this Hon’ble Court that Part III of the code has enshrined the

important rights of the Personal Guarantors. The part not notified part is still in the statute book

and the law forms a crucial part of the code. It is submitted that Sec. 60 also provides

Moratorium to the Guarantors. Therefore, it is humbly submitted before this Hon’ble Court

that Sec. 14 must be r/w Sec. 60 of the code,56 so that the code is a complete code and is read

along with the Part III of the Code

50
State Bank of India v. V. Ramakrishnan, [2018] 149 SCL 107 (SC).

51
Northway Spaces Ltd. v. SICOM Ltd, [2018] 91 taxmann.com 78 (NCLT - Ahd.).

52
The Insolvency and Bankruptcy Code, No. 31, Acts of Parliament, 2016.

53
ICICI Bank Ltd. v. Vista Steel (P.) Ltd, [2018] 95 taxmann.com 265 (NCL-AT).

54
State Bank of India v. D.S. Rajendra Kumar, [2018] 94 taxmann.com 60 (NCL-AT).

55
The Insolvency and Bankruptcy Code, No. 31, Acts of Parliament, 2016.

56
State Bank of India v. D.S. Rajendra Kumar, [2018] 94 taxmann.com 60 (NCL-AT).

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PRAYER

Wherefore in light of the facts of the case, issues raised, arguments advanced and authorities
cited, the counsel for the Applicant most respectfully submits before this Hon’ble Court to:

1. ALLOW the Review Petition No. 2 of 2019,

2. DECLARE that Personal Guarantors are entitled to the benefit of Moratorium,

3. HOLD that the Amendment to S. 14 (3) of the Insolvency & Bankruptcy Code
2016 ought not to be applied retrospectively,

4. DECLARE that the Bank fundamentally erred in proceeding against the Indian
Company and the Personal Guarantors,

5. HOLD that S. 14 of the Insolvency & Bankruptcy Code 2016 must be r/w. Part III
of the Code to grant the benefit of Moratorium to the Personal Guarantors.

AND/OR

Render any other opinion that it deems fit in the interest of Justice, Equity and Good
Conscience.

All of which is respectfully affirmed and submitted.

Sd/-

Counsel for the Applicant

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