2018 (2) TMI 984 - Tri - Insolvency and Bankruptcy

Corporate insolvency procedure - Resolution Applicant for transmitting to the Committee of Creditors for taking immediate steps - Held that - In the case in hand, the guarantee has not been invoked, and the personal guarantor has not committed any default. No demand has been made under guarantee. Therefore, no default in the payment of dues by the guarantor has occurred. During the moratorium period, the guarantee cannot be invoked. Thus, present Resolution Applicant is not barred by clause (c) and clause (h) of section 29A of the I.B. Code. It is pertinent to mention that in the case in hand the extended period for submission of Resolution Plan is going to expire on 23rd Dec 2017. The Resolution Applicant has submitted the revised Resolution Plan after deliberate discussion in consecutive meetings of CoC, and the same was under consideration meanwhile IB Amendment Ordinance promulgated on 23rd Nov 2017. Aims and objective of the Ordinance were to prohibit certain persons from submitting a Resolution Plan who, on account of their antecedents, may adversely impact the credibility of the processes under the Code. It is clear that contract of guarantee under which no claim has been made and which need not be performed cannot be treated as a subsisting or enforceable contract for clause (h) of section 29A, as the liability to pay for a guarantor arises when the debt is crystalised. If the guarantee is not invoked and demand is not made on the guarantor, debt payable by him is not crystalised. The Company Application has been decided to clarify the position of the Resolution Applicant, who happens to be the personal guarantor of a corporate debtor, against whom guarantee has not been invoked, and demand has not been made, regarding his eligibility to submit a resolution plan. In such a situation guarantor cannot be deemed to be a defaulter, therefore, his case is not covered under clauses (c) and (h) of section 29A of the amended I.B. Code. Disqualifying the entire class of guarantors under clause (h) of section 29A would be discriminatory. However, it is to be made clear that we have clarified the legal position only and CoC has to take independent decision on the Resolution Plan of the applicant.

Issues Involved: Eligibility of the Resolution Applicant under Section 29A of the Insolvency & Bankruptcy Code, 2016; Interpretation of clauses (c) and (h) of Section 29A; Impact of the moratorium on the invocation of guarantees; Decision-making process of the Committee of Creditors (CoC).

Issue-Wise Detailed Analysis:

1. Eligibility of the Resolution Applicant under Section 29A of the Insolvency & Bankruptcy Code, 2016:
The core issue revolves around the eligibility of the Resolution Applicant, who is a promoter-director of the Corporate Debtor, under the newly inserted Section 29A of the Insolvency & Bankruptcy Code, 2016. The Resolution Applicant argued that he is not disqualified under any of the clauses of Section 29A, particularly clauses (c) and (h). He asserted that neither he nor any person acting jointly with him is a promoter or in the management or control of the Corporate Debtor, nor is he an undischarged insolvent, a willful defaulter, or disqualified to act as a director.

2. Interpretation of Clauses (c) and (h) of Section 29A:
Clause (c) disqualifies persons whose accounts are classified as non-performing assets (NPA) for over a year and who have failed to make payments of all overdue amounts before submitting the resolution plan. The Resolution Applicant contended that none of his accounts is irregular, and even for the Corporate Debtor, a period of one year or more had not lapsed as on the date of commencement of the insolvency resolution process. Clause (h) disqualifies persons who have executed an enforceable guarantee in favor of a creditor concerning a corporate debtor under insolvency resolution or liquidation. The Resolution Applicant argued that the guarantee executed by him had not been invoked, and thus, he should not be considered a defaulter.

3. Impact of the Moratorium on the Invocation of Guarantees:
During the insolvency resolution process, a moratorium is in place, preventing the invocation of guarantees. The Tribunal noted that the corporate guarantee had not been invoked and could not be invoked during the moratorium period. Therefore, the Resolution Applicant could not be considered a defaulter under clause (h) of Section 29A.

4. Decision-Making Process of the Committee of Creditors (CoC):
The CoC had multiple meetings to deliberate on the Resolution Plan submitted by the Applicant. Despite the legal opinion suggesting the Applicant's eligibility, the CoC members opined that the Applicant was ineligible under clauses (c) and (h) of Section 29A. The Tribunal observed that the CoC's decision was influenced by the recent ordinance amending the Insolvency & Bankruptcy Code. The Tribunal clarified that the intention of the legislature was not to disqualify bona fide persons from submitting a resolution plan but to exclude those whose antecedents might adversely impact the credibility of the insolvency process.

Conclusion:
The Tribunal concluded that the Resolution Applicant was not barred by clauses (c) and (h) of Section 29A of the Insolvency & Bankruptcy Code, 2016. It emphasized that the guarantee had not been invoked, and no demand had been made, thus the debt payable by the guarantor was not crystallized. The Tribunal clarified the legal position, stating that disqualifying the entire class of guarantors under clause (h) would be discriminatory and violative of Article 14 of the Constitution of India. The CoC was directed to take an independent decision on the Resolution Plan submitted by the Applicant.

Order:
The Company Application was decided to clarify the eligibility of the Resolution Applicant, and a certified copy of the order was to be issued and communicated to the Resolution Professional and the Resolution Applicant for further action by the CoC.

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