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2022 (5) TMI 808 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Personal Guarantors to Corporate Debtors - existence of debt and dispute or not - breach of contract - HELD THAT - It is noted under section 128 of Indian Contract Act, 1872 that when a default is committed, the Principal Borrower and Surety are jointly and severally liable to Creditor and Creditor has the right to recover its dues from either of them or from both of them simultaneously. In this application filed by the Financial Creditor, a Deed of Guarantee dated 25.04.2014 is executed between the SBI led Consortium and the Personal Guarantor. Clause 24 of the Deed of Guarantee states that this Guarantee shall be irrevocable and the obligations of the Guarantors hereunder shall be discharged except by performance and then only to the extent of such performance, such obligation shall not be conditional on the receipt of any prior notice by the Guarantors or by the Borrower and the demand notice by the Lenders shall be sufficient notice to or demand on the Guarantors - CIRP can be proceeded against the Personal Guarantor as an irrevocable Deed of Guarantee has been signed between the SBI led Consortium and the Personal Guarantor. The liability of the Personal Guarantor continues and the Financial Creditor is in condition to realize the default amount from the Personal Guarantor. On-going through the averments in the IBA, the reply of Respondents after the report of the Resolution Professional as also the report of Resolution Professional, it is opined that this is a fit case for admission and proceed against the Personal Guarantor/Respondent and initiate Corporate Insolvency Resolution Process. It is also seen from the report of Resolution Professional that he has not recommended for a negotiation between the parties for arriving at an amicable settlement for repayment - Petition admitted - moratorium declared.
Issues Involved:
1. Initiation of insolvency process against the Personal Guarantor under Section 95 of the Insolvency and Bankruptcy Code, 2016. 2. Validity and enforceability of the Deed of Guarantee executed by the Personal Guarantor. 3. Impact of the Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor on the liability of the Personal Guarantor. 4. Legal implications of the approval of a resolution plan on the liability of the Personal Guarantor. 5. Procedural requirements for the initiation and conduct of the Insolvency Resolution Process against the Personal Guarantor. Detailed Analysis: 1. Initiation of Insolvency Process against the Personal Guarantor: The application was filed under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC, 2016) by the State Bank of India (Financial Creditor) to initiate the insolvency process against the Personal Guarantor for a default amount of Rs. 176,45,58,095.31. The Tribunal noted that as per Section 60(2) of IBC, 2016, the NCLT is the competent forum to file an application for a Personal Guarantor when a Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor is pending before it. The CIRP for the Corporate Debtor was ordered on 09.11.2020, making the present application valid. 2. Validity and Enforceability of the Deed of Guarantee: The Deed of Guarantee dated 25.04.2014 was executed by the Personal Guarantor in favor of the SBI-led Consortium banks. The Tribunal emphasized that the Deed of Guarantee was irrevocable and the obligations of the Guarantor would be discharged only by performance. The Hon'ble National Company Law Appellate Tribunal in the matter of State Bank of India vs. Athena Energy Venture Private Limited clarified that CIRP can proceed against both the Principal Borrower and the Guarantor. Therefore, the Tribunal held that CIRP could proceed against the Personal Guarantor based on the irrevocable Deed of Guarantee. 3. Impact of CIRP of the Corporate Debtor on the Liability of the Personal Guarantor: The Tribunal referred to the Hon'ble Supreme Court's judgment in Lalit Kumar Jain vs. Union of India & Ors., which held that the approval of a resolution plan does not discharge a Personal Guarantor's liability. The liability of the Personal Guarantor continues independently of the resolution plan approved for the Corporate Debtor. Consequently, the Financial Creditor can realize the default amount from the Personal Guarantor despite the approval of the resolution plan for the Corporate Debtor. 4. Legal Implications of the Approval of a Resolution Plan on the Liability of the Personal Guarantor: The Supreme Court in Lalit Kumar Jain vs. Union of India & Ors. observed that the sanction of a resolution plan does not per se operate as a discharge of the guarantor's liability. The release or discharge of a principal borrower from the debt owed by it to its creditor does not absolve the guarantor of his or her liability, which arises out of an independent contract. Therefore, the Personal Guarantor cannot be discharged from his liability upon the approval of the resolution plan under Section 31 of IBC, 2016. 5. Procedural Requirements for the Initiation and Conduct of the Insolvency Resolution Process against the Personal Guarantor: The Tribunal directed the initiation of the Insolvency Resolution Process against the Personal Guarantor and declared a moratorium on all debts from the date of admission of the application, which shall cease at the end of 180 days or upon the Tribunal passing an order on the repayment plan under Section 114, whichever is earlier. During the moratorium period, any pending legal action or proceeding in respect of any debt shall be stayed, creditors shall not initiate any legal action or proceedings in respect of any debt, and the debtor shall not transfer, alienate, encumber, or dispose of any of his assets. The appointed Resolution Professional was directed to publish a public notice inviting claims from all creditors within 21 days, prepare a list of creditors, and submit a repayment plan in consultation with the debtor. The Resolution Professional shall also submit periodic reports to the Tribunal and perform his functions in compliance with the Code of Conduct provided under Section 208 of IBC, 2016. Order: The Tribunal admitted the application under Section 95 of IBC, 2016, initiated the Insolvency Resolution Process against the Personal Guarantor, and declared a moratorium on all debts. The Resolution Professional was directed to publish a public notice, prepare a list of creditors, and submit a repayment plan within the stipulated timelines.
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