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2023 (8) TMI 998 - AT - Insolvency and BankruptcyApproval of Resolution plan - CIRP - NCLT rejected the plan - Plan contains the provision for extinguishment of personal guarantee of the personal guarantors - HELD THAT - The Hon ble Supreme Court again in LALIT KUMAR JAIN VERSUS UNION OF INDIA AND ORS. 2021 (5) TMI 743 - SUPREME COURT had occasion to consider the provisions of the Code as well as the law pertaining to personal guarantor and the consequence of approval of the Resolution Plan on the rights of the personal guarantors. In the said judgment, the Hon ble Supreme Court held that sanction of a resolution plan does not per se operate as a discharge of the guarantor s liability. It was held that approval of a resolution plan does not ipso facto discharge a personal guarantor. The use of expressions per se and ipso facto clearly indicate that by approval of the Resolution Plan, personal guarantors are not per se and ipso facto discharge from its obligation which may arise of the guarantee given to the Financial Creditor. The use of above expressions conversely indicates that there may be situations and circumstances, for example, relevant clauses in the Resolution Plan by which personal guarantors may be discharged. The judgment of the Hon ble Supreme Court in Lalit Kumar s case cannot be read to mean as laying down law that personal guarantee never can be discharged in a Resolution Plan. There can be no dispute that Moratorium under Section 14 is not applicable on the personal guarantors. Non-applicability of the Moratorium on personal guarantor is with different object and purpose. Personal guarantors are liable along with the principal borrower and can be proceeded with for recovery of dues by the Financial Creditor but the question as to whether personal guarantee given to the Financial Creditor can be extinguished in a Resolution Plan is a question which is a separate question and was not under consideration by the Hon ble Supreme Court in State Bank of India vs. V. Ramakrishnan and Anr 2005 (10) TMI 542 - SUPREME COURT . The present is a case where CoC consciously considered the clauses in the plan for relinquishing the personal guarantees of the Financial Creditors and as noticed above for a consideration offered by the Successful Resolution Applicant for release of the personal guarantee passed the Resolution Plan accepting the clause in the plan for release of the personal guarantee - The present is not a case where issue pertaining to the release of the personal guarantee was not before the CoC and was not deliberated. There is no error in the consideration of the CoC of the Resolution Plan and the commercial wisdom of the CoC by approving the Resolution Plan has to be given due weightage. The Adjudicating Authority committed error in rejecting the Application for approval of the Resolution Plan on the ground that plan could not have contained a provision for extinguishment of personal guarantee of the personal guarantors. Plan allocates a plan value for extinguishment of personal guarantee which has been accepted by the Financial Creditors by a vote share of 78.04% - the order of the Adjudicating Authority dated 06.01.2023 is unsustainable - Appeal allowed.
Issues Involved:
1. Rejection of the Resolution Plan by the Adjudicating Authority. 2. Extinguishment of rights under personal guarantees. 3. Commercial wisdom of the Committee of Creditors (CoC). 4. Applicability of Section 30(2)(e) of the Insolvency and Bankruptcy Code (IBC). Summary: 1. Rejection of the Resolution Plan by the Adjudicating Authority: The Appellant, a Successful Resolution Applicant, filed an appeal against the order dated 06.01.2023 by the Adjudicating Authority (National Company Law Tribunal), Indore Bench, which rejected the Resolution Plan submitted by the Appellant. The Corporate Insolvency Resolution Process (CIRP) was initiated against the Corporate Debtor, and the Resolution Plan was approved by the CoC with a 78.04% vote share. However, the Adjudicating Authority rejected the plan, citing that the CoC cannot extinguish the right of a secured creditor to proceed against the personal guarantor of the Corporate Debtor. 2. Extinguishment of rights under personal guarantees: The Bank of Baroda, holding a 5.83% voting share, objected to the Resolution Plan on the grounds that it provided for the extinguishment of rights under personal guarantees. The Adjudicating Authority accepted this objection, stating that such a provision contravenes Section 30(2)(e) of the IBC. The Appellant argued that the personal guarantees are a security interest under the Code and can be dealt with in a Resolution Plan, and that the CoC's commercial wisdom should be given paramount importance. 3. Commercial wisdom of the Committee of Creditors (CoC): The CoC approved the Resolution Plan with a majority vote of 78.04%, which included a provision for the extinguishment of personal guarantees after paying due compensation to the Financial Creditors. The Appellant and the CoC argued that the Adjudicating Authority should not interfere with the commercial wisdom of the CoC, especially at the instance of a dissenting Financial Creditor with a minor voting share. 4. Applicability of Section 30(2)(e) of the Insolvency and Bankruptcy Code (IBC): The Adjudicating Authority held that the CoC cannot extinguish the right of a secured creditor to proceed against the personal guarantor, as it contravenes Section 30(2)(e) of the IBC. However, the Appellant argued that the Supreme Court judgments indicate that personal guarantees are not per se and ipso facto discharged by the approval of a Resolution Plan, and that there may be circumstances where personal guarantees can be discharged if relevant clauses are included in the Resolution Plan. Conclusion: The Appellate Tribunal concluded that the Adjudicating Authority committed an error in rejecting the Resolution Plan on the grounds of extinguishing personal guarantees. The Tribunal held that the Resolution Plan did not contravene Section 30(2)(e) of the Code and that the commercial wisdom of the CoC should be given due weightage. The Tribunal allowed the appeal, set aside the order dated 06.01.2023, and directed the Adjudicating Authority to pass a fresh order on the approval of the Resolution Plan within three months.
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