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TMI Blog2021 (10) TMI 698X X X X Extracts X X X X X X X X Extracts X X X X ..... esponsible for diversion of funds. Thus, in case a company is held guilty of diversion of funds the company as well as its directors can be classified as Wilful Defaulters. Though the company is absolved of its liability through corporate resolution process and the board of directors are removed from the board of the said company, such directors would still be liable in case they have furnished personal guarantee to the loan facility extended to the company. The directors being at the helm of the affairs of a company are responsible for diversion of funds. Whether the contractual obligations between the financial creditor and the surety are obliterated or modified or suspended by the eventual outcome of a proceeding under Section 7 of the IBC, 2016? - HELD THAT:- It is now well settled that the corporate Debtor in a proceeding under the IBC, 2016 may stand discharged of its liability to its creditors but such discharge does not absolve the surety of its liability - A co-ordinate bench of this Hon ble Court in Gouri Shankar [ 2019 (11) TMI 1169 - CALCUTTA HIGH COURT ] after considering the provisions of Section 31 of the IBC, 2016 observed that the contractual obligations bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arch 11, 2020 declared the petitioners as wilful defaulters. The petitioners made representations against the aforesaid decision classifying them as wilful defaulters. The written representation received from the petitioners as well as the response of the Department was placed before the Wilful Defaulters Review Committee in its meeting held on August 27, 2020. The Review Committee by an order dated October 13, 2020 held that the petitioners are fit to be declared as wilful defaulters and their names are to be forwarded to Credit Information Companies and other actions to be initiated as specified in RBI circular. The writ petitioners are aggrieved by the decision of the Wilful Defaulters Review Committee in classifying them as wilful defaulters. Mr. Jishnu Saha, learned Senior Counsel for the petitioner contended that wilful default would be deemed to have occurred if any of the events mentioned in 2.1.3 of the Master Circular on wilful defaulters dated July 1, 2015 is noted. He contended that the identification of the wilful default should be made keeping in view the track records of the borrowers and should not be decided on the basis of an isolated transactions/ incidents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the contractual obligations between the financial creditor and the guarantor are not extinguished by the outcome of a proceeding under IBC, 2016. In reply Mr. Saha, learned Senior Counsel for the petitioner admitted the pendency of proceedings before the Debt Recovery Tribunal. He stated that, through, advertence such fact was not stated in the writ petition. By referring to clause 2.6 of the Master Circular Mr. Saha contended that a non-group corporate or an individual guarantors can be classified as an willful defaulters in case such guaranties were given with effect from September 9, 2014 and the guarantees taken prior to this date does not come within the purview of the said Master Circular. Mr. Saha contended that the guarantees given by the petitioners in the instant case was prior to September 9, 2014 and as such the petitioners being individual guarantors cannot be classified as wilful defaulters pursuant to the said Master Circular. The Learned Advocate for the parties advanced their arguments on points of law and as such affidavits were neither sought for nor invited by this Court. The question which has cropped up in the instant writ petition is whether t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of sanction; (b)deploying borrowed funds for purposes/activities or creation of assets other than those for which the loan was sanctioned; (c) transferring borrowed funds to the subsidiaries/ Group companies or other corporates by whatever modalities; (d) routing of funds through any bank other than the lender bank or members of consortium without prior permission of the lender; (e) investment in other companies by way of acquiring equities/ debt instruments without approval of lenders; (f) shortfall in deployment of funds vis- -vis the amounts disbursed/ drawn and the difference not being accounted for. Paragraph 2.5 of the Master Circular provides that no additional facilities should be granted by the bank or financial institutions to companies including their entrepreneurs/ promoters to the listed Wilful Defaulters. It also provides for initiation of legal process against the borrowers/ guarantors. Paragraph 3 of the Master Circular provides the mechanism for identification of Wilful Defaulters. IDBI Bank Limited (for short IDBI ) granted fund based working capital loan facilities to TCL in order to finance the company s ongoing projects unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n terms of Serial no. 2.1.3(b) [2.2.1 (d)] of the Master Circular of RBI on Wilful Defaulters dated July 1, 2015. The Wilful Defaulters Committee of the Bank declared the writ petitioners as wilful defaulters. The respondent no. 4 issued a notice dated April 22, 2020 requesting the writ petitioners to submit their further representation on the classification of wilful defaulter before the Review Committee. The writ petitioners by a letter dated April 29, 2020 reiterated the submissions made by them in the letter dated December 3, 2019 which is the reply to the show cause notice dated November 19, 2019. It was further stated therein that they have also submitted the documents as requested by the respondent no. 4. The Wilful Defaulters Review Committee in its meeting held on August 27, 2020, after considering the written representations submitted by the writ petitions and the department s response thereto, passed an order that the promoters/ directors of TCL i.e. the petitioners herein are fit to be declared as wilful defaulters. It was specifically observed by the said Review Committee that despite the fact that operations of the committee were allowed through TRA account only, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rge does not absolve the surety of its liability. A co-ordinate bench of this Hon ble Court in Gouri Shankar (supra) after considering the provisions of Section 31 of the IBC, 2016 observed that the contractual obligations between the financial creditor and the surety are not obliterated or modified or suspended by the eventual outcome of a proceeding under section 7 of the IBC. This court in Gouri Shankar Jain (supra) held, thus- 35. In a proceeding under Section 7 of the Code of 2016, the consent of the surety is immaterial when, the creditor is dealing with the principal debtor in terms of the Code of 2016. Therefore, when, the Adjudicating Authority sanctions a Resolution Plan in respect of the corporate debtor in an application under Section 7 of the Code of 2016, then, the action taken by the creditor in a proceeding under Section 7 of the Code of 2016 is involuntary. The Corporate Debtor in a proceeding under Section 7 of the Code of 2016 may stand discharged of its liability to its creditors. Such discharge being had in a proceeding for bankruptcy and insolvency, the same does not absolve the surety of the liability as has been held in Maharashtra State Electricity Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or, they have to carry the burden of the financial obligation to ensure repayment. In such a case where the directors are guarantors and fails and neglects to fulfill their financial obligation of repayment, they can be classified as wilful defaulters as has been held by a Division Bench of the Hon ble High Court at Calcutta in FMA 906 of 2020 (Axis Bank Limited vs. Gourav Dalmia Ors. ). However, in the said judgment the Division Bench held that the writ petitioners therein stood rid of their burden as wilful defaulters and their names were liable to be removed from the list of wilful defaulters the moment the money due to the bank was paid in the full or was agreed to be received by way of a compromise since no personal guarantee was furnished by any of the writ petitioners therein. In the instant case the writ petitioners furnished personal guarantee to the loan facilities extended by the concerned bank and the writ petitioners would be liable till the entire debt is discharged and can be classified as wilful defaulters. For the reasons as aforesaid, this Court is of the view that the writ petitioners who were the guarantors to the loan facility extended to the company and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 015. The petitioners were given an opportunity to make a representation against the decision of the first committee to classify them as wilful defaulters. The writ petitioners submitted a representation reiterating their earlier reply which was submitted in response to the show cause notice. The Review Committee after considering the representations and the submissions made by the writ petitioners held that the borrower has routed substantial transactions through non-TRA accounts which is diversion of funds and violation of CDR terms. Thus, the Review Committee considered the said manner in the light of the observations made in Jah Developers( supra) and passed a reasoned order. The Show Cause notice stated in details about the nature of wilful default. The reference of the documents on the basis of which the writ petitioners were sought to be classified as wilful defaulters were also indicated in such notice. The writ petitioners got several opportunities to controvert such allegations. The writ petitioners relied upon some documents in support of their contention that they cannot be classified as wilful defaulters. The Review Committee after consideration of all documents ..... X X X X Extracts X X X X X X X X Extracts X X X X
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