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2024 (3) TMI 1317 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHIDoctrine of subrogation - Allowing recourse to the Financial Creditors against the Personal Guarantors of Asian Colour Coated Ispat Limited - Resolution Plan approved - whether the Financial Creditor can proceed against the Personal Guarantors in absence of any debt after extinguishment of such debts upon assignment in terms of the RBI Prudential Framework for Resolution of Stressed Assets dated 07.06.2019 and as stipulated in the approved Resolution Plan? - HELD THAT:- As a general rule, the doctrine of subrogation is an absolute right of the guarantor, however, the issue becomes different, if it falls within the domain of the Code in the context of CIRP proceedings. We note that as per notification dated 15.11.2019, the Personal Guarantors became liable under the Code and therefore, the treatment of Personal Guarantors under the Code are to be treated differently vis-à-vis under the contract of guarantees under the Indian Contract Act, 1872. The denial of right of subrogation is no more res-judicata and has been decided in catena of the judgments by the Hon’ble Supreme Court of India. Hon’ble Supreme Court of India in COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LIMITED THROUGH AUTHORISED SIGNATORY VERSUS SATISH KUMAR GUPTA & OTHERS [2019 (11) TMI 731 - SUPREME COURT] noted that the Financial Creditors can pursue their claims against the Personal Guarantors to the Corporate Debtor and right of subrogation gets extinguished, although the apex Court decided not to express conclusive opinion which might have affected them pending litigations on account of invocation of such guarantees. It is now well settled law, in light of the Essar Case that rights of subrogation that may arise against the Corporate Debtor can be extinguished under the Resolution Plan and therefore the arguments of the Appellant on issue of rights of subrogation’s are not convincing. If the rights of subrogation are allowed to continue against the Corporate Debtor under the management of the new SRA, the same would have the effect of putting the SRA and the Corporate Debtor in the same position as prior to its insolvency resolution. The allegation of the Appellant pertaining to differential treatment due to extinguishing their rights of subrogation under the approved Resolution Plan against the Corporate Debtor is unfounded, which is only to ensure that the SRA takes control of the Corporate Debtor on a clean slate without carrying any previous liability baggage. The extinguishment of Personal Guarantors right of subrogation is unavoidable and inaccessible fact in insolvency cases and it requires to be respected by all stakeholders and any departure from such principles will have adverse impact on revival of the Corporate Debtors, interest of the Financial Creditors and overall negative impact on the national economy. The financial creditors have reserved the rights to proceed against the personal guarantors like the Appellant herein in terms of the “Excluded Rights” in approved Resolution Plan. There is no question of transfer of a “mere right to sue” and in such circumstances, we feel that it is a structured financial deal in form of Resolution Plan exercised based on the commercial wisdom, with aim of resolution of a corporate debtor, as well as to ensure that financial creditors are able to recover their outstanding debts as guaranteed by the Personal Guarantors, the Appellants herein. Alleged non existing of debts in the books of the Financial Creditors and regarding treatment in the books of the financial creditors with respect to such continuing rights of the financial creditors against the personal guarantors of the Corporate Debtor after the approval of the Resolution Plan - HELD THAT:- The treatment in the Books of the Financial Creditors is based on RBI Prudential norms which were issued with several purposes, including and not limited to, discouraging the Financial Creditors to resort to ever greening of loans. We feel that such RBI guidelines do not intent to give undue benefits to the Personal Guarantors of the Corporate Debtors or debar the Financial Creditors in pursuing their legal rights to recover their outstanding debts from the Personal Guarantors to the Corporate Debtor. After all, it cannot be anyone’s case to write off public money by such circuitous route or hypothetical legal assumption. The Hon'ble Supreme Court, in SWISS RIBBONS PVT. LTD. AND ANR. VERSUS UNION OF INDIA AND ORS. [2019 (1) TMI 1508 - SUPREME COURT], has categorically recognised the concept of preserving the corporate debtor as a going concern while ensuring maximum recovery for all creditors to be the intent of the Code. Thus, commercial wisdom of the CoC has been given supremacy and no grounds exist for the Adjudicating Authority or Appellate Tribunal to interfere. There are no error in the Impugned Order - appeal dismissed.
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