2018 (3) TMI 902 - Tri - Insolvency and Bankruptcy

Deed of guarantee executed by the guarantors duly stamped - whether or not this company petition be admitted basing on this deed of guarantee? - Held that - For the Corporate Debtor themselves agreed that the right against the principal borrower and the corporate guarantors is co extensive, the creditor need not remain in waiting until the realisable claim is crystalized from the principal borrower. Since the right against the principal borrower not being extinguished in making the claim against the principal borrower, the creditor has every right as per law to proceed against the Corporate Debtors therefore, we have not found any merit in the arguments made by the Corporate Debtors Counsel. Whether these proceedings are liable to be stayed as prayed by the corporate debtors. On perusal of the provisions of the Insolvency & Bankruptcy Code as well as Indian Contract Act, we have not seen any impediment in proceeding against the guarantors under any provision of law, much less under Insolvency & Bankruptcy Code, whereby we have not found any sufficient cause to stay these proceedings against these Corporate Debtors. On having already stated the Creditor has furnished the material showing existence of debt and default by the principal borrower, these Company Petitions are in fact fit to be admitted for declaration of moratorium as envisaged under Section 14 of the Code.

Issues:

1. Whether or not the deed of guarantee executed by the guarantors is duly stamped and whether or not this company petition be admitted basing on this deed of guarantee.
2. Whether or not moratorium declared in CP 31/2017 against the principal borrower will have any bearing on this proceeding filed u/s. 7 of Insolvency & Bankruptcy Code against these corporate debtors/guarantors.
3. Whether or not a resolution plan, if any passed, will be binding on this petitioner in proceeding against this guarantor u/s. 7 of IB Code.
4. Whether or not non-crystallization of realizable claim in distribution of assets will have any bearing on these proceedings against the corporate debtors/guarantors.
5. Whether or not this deed of guarantee is hit by section 141 of Indian Contract Act.
6. Whether these proceedings are liable to be stayed as prayed by the corporate debtors.

Detailed Analysis:

1. Whether or not the deed of guarantee executed by the guarantors is duly stamped and whether or not this company petition be admitted basing on this deed of guarantee:

The deed of guarantee was executed at Delhi on 12.7.2014 with a stamp duty of ?200. The Corporate Debtor argued it was insufficiently stamped under Article 5(h)(A)(iv)(b) of the Maharashtra Stamp Act, 1958. The Tribunal noted that the deed of guarantee is incidental to the loan agreement executed by the principal borrower, and no separate consideration was passed to the guarantor. The Tribunal held that the deed of guarantee does not need to be individually stamped if the loan agreement is sufficiently stamped, as it is part of the same transaction. The Tribunal cited the Bombay High Court's ruling in L&T Finance Ltd. v. Damodar Surya Bandekar, which allowed the use of such documents for passing orders and sending them for impounding later. Therefore, the Tribunal found no merit in the argument that the deed of guarantee is inadmissible due to insufficient stamping.

2. Whether or not moratorium declared in CP 31/2017 against the principal borrower will have any bearing on this proceeding filed u/s. 7 of Insolvency & Bankruptcy Code against these corporate debtors/guarantors & Whether or not this deed of guarantee is hit by section 141 of Indian Contract Act:

The Corporate Debtor argued that the moratorium declared in CP 31/2017 against the principal borrower should extend to the guarantors. They cited the NCLT Chennai ruling in V. Ramakrishnan v. Veesons Energy Systems (P.) Ltd., which held that creditors cannot proceed against guarantors during the moratorium period. However, the Tribunal noted that the deed of guarantee explicitly stated that the guarantors' liability is independent and distinct from any security taken by the lenders and that the guarantors would not be discharged even if the terms of the loan agreement varied. The Tribunal found that sections 140 and 141 of the Indian Contract Act, which deal with the rights of surety, do not prevent creditors from proceeding against guarantors. The Tribunal also noted that the Insolvency and Bankruptcy Code does not bar proceedings against guarantors during the moratorium period. Therefore, the moratorium against the principal borrower does not affect the proceedings against the guarantors.

3. Whether or not a resolution plan, if any passed, will be binding on this petitioner in proceeding against this guarantor u/s. 7 of IB Code:

The Corporate Debtor argued that the creditor should not proceed against the guarantors until the liability against the principal borrower is crystallized. They cited the case of Sanjeev Shriya v. State Bank of India. However, the Tribunal noted that the liability of the surety to pay the guaranteed amount does not extinguish even if liquidation proceedings are initiated against the principal borrower. The Tribunal cited several Supreme Court rulings, including Maharashtra State Electricity Board v. Official Liquidator High Court Ernakulam, which held that creditors could proceed against guarantors independently of the principal borrower's insolvency proceedings. The Tribunal found that the Insolvency and Bankruptcy Code does not impose a bar against initiating proceedings against corporate guarantors. Therefore, the resolution plan, if any, does not bind the petitioner from proceeding against the guarantors.

4. Whether or not non-crystallization of realizable claim in distribution of assets will have any bearing on these proceedings against the corporate debtors/guarantors:

The Tribunal noted that the guarantors had agreed that the right against the principal borrower and the corporate guarantors is co-extensive. Therefore, the creditor need not wait until the realizable claim is crystallized from the principal borrower. The Tribunal found no merit in the argument that non-crystallization of the claim affects the proceedings against the guarantors.

5. Whether or not this deed of guarantee is hit by section 141 of Indian Contract Act:

The Tribunal found that sections 140 and 141 of the Indian Contract Act do not prevent creditors from proceeding against guarantors. The deed of guarantee explicitly stated that the guarantors' liability is independent and distinct from any security taken by the lenders. Therefore, the deed of guarantee is not hit by section 141 of the Indian Contract Act.

6. Whether these proceedings are liable to be stayed as prayed by the corporate debtors:

The Tribunal found no provision under the Insolvency and Bankruptcy Code or the Indian Contract Act that impedes proceedings against guarantors. Therefore, the Tribunal found no sufficient cause to stay the proceedings against the corporate debtors.

Conclusion:

The Tribunal admitted the petitions and declared a moratorium as envisaged under Section 14 of the Insolvency and Bankruptcy Code. Separate reliefs were given against each corporate debtor, and an Interim Resolution Professional was appointed to carry out the functions under the Code.

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