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2023 (7) TMI 962 - HC - Insolvency and BankruptcySeeking issuance of writ of prohibition, preventing the respondent from approaching the concerned NCLT under the provisions of the IBC - Seeking quashing of demand notice, invoking the personal guarantees of the petitioner for the purported total outstanding debt. HELD THAT - A writ of prohibition can be issued, when a petitioner has made out a case for want of jurisdiction. However, in cases where jurisdictional challenges can be agitated before an alternate forum, circumspection must be observed before a writ of prohibition can be granted. Indeed, the authorities do not treat the existence of an alternate remedy as a bar to grant the writ of prohibition. In the landmark case of WHIRLPOOL CORPORATION VERSUS REGISTRAR OF TRADE MARKS, MUMBAI ORS. 1998 (10) TMI 510 - SUPREME COURT as well, the Hon ble Supreme Court declared that in cases where proceedings are wholly without jurisdiction, an alternate remedy does not bar relief. Despite the existence of an alternate remedy not being a bar to grant the writ of prohibition, it is a valid consideration that needs to be given its due weightage while entertaining a petition praying for a writ of prohibition. Undeniably, the principle of Nooh 1957 (9) TMI 42 - SUPREME COURT , has application in the instant case, not merely because the petitioner prays for the impugned demand notice to be quashed, but also because the writs of certiorari and prohibition are complementary in nature, having a common ground of lack of jurisdiction . Thus, the existence of an alternate remedy does not act as a bar to entertain a petition praying for a writ of prohibition. In cases where an alternate remedy is available to the petitioner, there is a higher threshold that needs to be met, it being of a total and absolute lack of jurisdiction, in order for a writ court to grant relief. The existence of a statutorily prescribed alternate remedy, where a specialized forum is competent to decide upon its own jurisdiction, the burden upon a petitioner is further compounded. In such a scenario, the petitioner needs to convince the court, not merely that the proceedings or actions being taken are wholly without jurisdiction but also why the alternate forum must be deprived of an opportunity to decide upon its own jurisdiction. The petitioner contends that the respondent must be prevented from approaching the concerned NCLT under Section 95 of the IBC, and the impugned demand notice must be quashed as there is no debt the petitioner owes to the respondent. Firstly, that the assignment, by splitting the debt, adversely affects the rights of the surety. An assignment of this kind, when analysed through this lens, may possibly undermine a variety of different benefits that a surety is entitled to under the Indian Contract Act, 1872 (ICA). For instance, in the present case, the right of subrogation, may be seen to have become illusory. If at all in the present case, the assignor is allowed to enforce the guarantee, and the guarantor subsequently pays the entire debt, the guarantor could not, then, meaningfully make a claim for subrogation, as the principal debtor still owes the debt to the assignee - Importantly, however, it may be seen that a guarantor may waive these beneficial rights that he is so entitled to under the ICA. The general principle of the law allowing beneficial provisions to be waived off by the consent of the beneficiary is equally applicable in the context of the surety s rights under the ICA. The surety may waive his rights either through express and specific terms in the contract of guarantee itself, or through a subsequent agreement between the guarantor and the creditor to that effect - thus, the concerned NCLT must carefully scrutinize the deed of guarantee, if at all required. There are broadly three submissions of the respondent that are relevant to the issue, firstly, while relying upon the decision of Lalit Kumar Jain 2021 (5) TMI 743 - SUPREME COURT , that the discharge or release of the principal debtor does not absolve the surety/guarantor of his liability; secondly, that the respondent is only seeking to recover the part of the debt that was left unrecovered after the CIRP of FACOR was concluded; and thirdly, that since the personal guarantees were specifically excluded from the Resolution Plan and the said Assignment Agreement, the terms of the Resolution Plan cannot be altered. It is clear that the specific issue considered by the Hon ble Supreme Court in the case of Lalit Kumar Jain was whether the approval of a resolution, which leads to a discharge or release of a corporate debtor can, in and itself, lead to a discharge of the personal guarantor - In the instant case, the petitioner s claim is not based on the mere passing of the Resolution Plan of FACOR, but rather is concerned with the effect that the terms of the Resolution Plan have in law. It is their case, that the Resolution Plan is valid in law, its terms need to be adhered to, however, the effect of the terms of the Resolution Plan is that the respondent cannot enforce the guarantee given to it by the petitioner - This court is, therefore, of the opinion that the pronouncement of Lalit Kumar Jain shall have no application in the facts of the present case. The second submission of the respondent that the respondent is only seeking to recover the part of the debt that was left unrecovered after the CIRP of FACOR was concluded now deserves attention - Indeed, it is the case that the respondent intends to recover what was left unrecovered after the CIRP of FACOR concluded, however, after the underlying debt was assigned. The assignee is entitled to recover the unrecovered amount as well. The third argument, and the most vehemently argued submission of the respondent must now be considered by this court. It is their contention that since the personal guarantees were specifically excluded from the Resolution Plan and the said Assignment Agreement, the respondent can proceed to enforce the guarantee given by the petitioner to the creditor. The terms of the Resolution Plan cannot be altered after they have attained finality. This court is of the opinion, that in the present case, no right of the petitioner under Article 14 of the Constitution of India has been violated. It is, therefore not warranted to delve into, what the true import of specific clauses of contracts is - it can be concluded that a reservation of rights clause is incompatible with an absolute release of a principal debtor. Whether the petitioner has established that the impugned demand notice was wholly without jurisdiction and the respondent must therefore be prevented from approaching the concerned NCLT under the provisions of the IBC? - HELD THAT - In a petition praying for a writ of prohibition, where a petitioner is to demonstrate the absence of jurisdiction, this court does not consider it fit, to develop, if at all this is a case for that to take place, an area of private contractual law, and then to use that development in order to establish a want of jurisdiction on the part of the respondent - It is not the case that the reliefs prayed for cannot be granted by the concerned NCLT. The petitioner s claim of the guarantor getting a right to be heard at a belated stage, is not sufficient to entertain the present petition. The legislature, in its wisdom, thought it fit to give the right of hearing at belated stage. Indeed, if in the present case the petition is entertained, it would subvert the procedure laid down under the IBC. The respondent in turn would be denied the opportunity to present their case before the concerned NCLT. This court is, therefore, of the opinion that the present writ petition deserves to be dismissed - Petition dismissed.
Issues Involved:
1. Jurisdiction of the Demand Notice issued under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019. 2. Existence of Debt and the Assignment Agreement. 3. Effect of Resolution Plan on Personal Guarantees. 4. Availability of Alternative Remedies. 5. Applicability of the Doctrine of Merger and Reservation of Rights. Summary: 1. Jurisdiction of the Demand Notice: The petitioner sought quashing of the impugned Demand Notice dated 09.12.2022 issued by REC Ltd. under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019, invoking the personal guarantees for the purported total outstanding debt of Rs. 1211,91,94,259. The court examined the nature of relief sought by the petitioner, primarily a writ of prohibition to prevent the respondent from approaching the NCLT under the provisions of the IBC, and an ancillary relief to quash the impugned demand notice. 2. Existence of Debt and the Assignment Agreement: The petitioner argued that there exists no debt against FPL that the respondent can recover, as the debt was assigned to FACOR under the Resolution Plan and the Assignment Agreement dated 21.09.2020. The petitioner contended that the assignment of the loan extinguished the respondent's status as a creditor, thereby nullifying the personal guarantee. The court noted that the impugned demand notice was issued under Rule 7 of the Rules, 2019, which mandates the existence of a debt. 3. Effect of Resolution Plan on Personal Guarantees: The petitioner argued that the Resolution Plan and the Assignment Agreement resulted in the respondent ceasing to be a creditor of FPL, thereby nullifying the personal guarantee. The court examined the clauses of the Resolution Plan and the Assignment Agreement, noting that personal guarantees were specifically excluded from the assignment. The court referenced the case of Hutchens v. Deauville Investments Pty. Ltd., which held that an assignment of the principal debt with an exclusion of guarantee results in the assignor being unable to invoke the guarantee. 4. Availability of Alternative Remedies: The respondent argued that the writ petition was not maintainable as there existed an alternative efficacious remedy available to the petitioner before the NCLT. The court noted that the existence of an alternative remedy does not bar relief under Article 226 of the Constitution in cases where proceedings are wholly without jurisdiction. However, the court emphasized that a higher threshold needs to be met in such cases, requiring the petitioner to demonstrate a total and absolute lack of jurisdiction. 5. Applicability of the Doctrine of Merger and Reservation of Rights: The respondent contended that the Resolution Plan did not affect the validity and enforceability of personal guarantees and that the terms of the Resolution Plan could not be altered. The court noted that the interpretation of contracts is typically not the subject matter of a writ petition and that the concerned NCLT must carefully scrutinize the deed of guarantee and the law on assignment and contract of surety. Conclusion: The court dismissed the writ petition, noting that the petitioner had not established a total want of jurisdiction on the part of the respondent. The court emphasized that the petitioner could present their case before the NCLT, which is competent to decide upon the issues on their merits. The court's observations on the merits of the case were considered prima facie, and the competent court/Tribunal was at liberty to deal with the issues on their merits.
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