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TMI Blog2021 (8) TMI 1389X X X X Extracts X X X X X X X X Extracts X X X X ..... owers by the Adjudicating Authority when it directed the Appellants, that the owners of the premises as mentioned in the judgment shall enter into Tripartite Agreements for transfer of the premises (as mentioned in para 18 of impugned order). In fact, if para 18 is seen, after describing the properties in the chart there is also portion added which says that the Financial Creditors shall be at liberty to proceed against the properties of the Promoters erstwhile Directors/ Guarantors other than those mentioned above to recover their balance . This, in the Resolution Plan would be blank cheque given to proceed even with regard to any other property also of the Personal Guarantors. Thus, without resorting to appropriate proceedings against the Personal Guarantors of Corporate Debtor this is irregular exercise of powers. The Resolution Plan approved by the Adjudicating Authority is rejected. All actions taken in consequence of the impugned order approving the Resolution Plan shall stand set aside - appeal allowed. - [ Justice A.I.S. Cheema ] The Officiating Chairperson And [ Dr. Alok Srivastava ] Member ( Technical ) For the Appellants : Mr. Abhishek Anand, Mr. Kunal Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Professional did not show the personal properties of the Appellants as properties of the Corporate Debtor. The same could not have been shown to be properties of the Corporate Debtor. However, in the Resolution Plan filed by Respondent No.1, the properties were included and sought to be transferred. Appellants claim that in the CIRP, the personal properties of the Appellants were not got valued and liquidation value of the assets of the Corporate Debtor was shown as mere Rs. 1,19,785/- against outstanding debt of Rs. 6,88,80,539/-. According to the Appellants, when the loan was taken in October, 2014, the Financial Creditors- Respondent Nos. 4 and 5 had got the personal properties of the Appellants valued at Rs. 6.43 Crores. It is claimed that the value at present is about Rs. 11-12 Crores. According to the Appellants, earlier Mr. Eknath Walke and Mr. Goraksh Dalimbkar had filed Resolution Plans which were even approved by the Committee of Creditors but later on Respondent No.1 applied to the Adjudicating Authority and, taking orders, filed Resolution Plan whereafter these two persons immediately withdrew the plans they had given. The Appellants alleged that the Resolution Plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is claimed by this Successful Resolution Applicant that it had a Leave and License Agreement with Corporate Debtor and M/s. Sanidhya Industries Private Limited (now Sanidhya Industries LLP ) executed on 24th August, 2016. The Successful Resolution Applicant refers to earlier litigation with the Corporate Debtor. Subsequently, when CIRP got initiated, this Successful Resolution Applicant appears to have filed claim with the Resolution Professional. Subsequently, this Respondent filed Resolution Plan which has been approved and which is now in dispute. This Respondent claims that the properties dealt with under the Insolvency Process are the properties wherein the Appellants were carrying on the hotel business of the Respondent No.2- Corporate Debtor. This Successful Resolution Applicant is referring to the other disputes to claim that the Appellants cheated the Respondent No.1 by inducing them to execute Leave and License Agreement on the basis of forged letter of Bank. It is claimed that the Respondent- Corporate Debtor had no actual property in its own name. The Successful Resolution Applicant is supporting the impugned order to claim that the order is legally tenable. 6. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondents are relying on para 22 of the judgment in the matter of State Bank of India v. V. Ramakrishnan Anr. [Civil Appeal No.3595 of 2018] passed by the Hon ble Supreme Court on 14th August, 2018. The said paragraph reads as under:- 22. Section 31 of the Act was also strongly relied upon by the Respondents. This Section only states that once a Resolution Plan, as approved by the Committee of Creditors, takes effect, it shall be binding on the corporate debtor as well as the guarantor. This is for the reason that otherwise, under Section 133 of the Indian Contract Act, 1872, any change made to the debt owed by the corporate debtor, without the surety s consent, would relieve the guarantor from payment. Section 31(1), in fact, makes it clear that the guarantor cannot escape payment as the Resolution Plan, which has been approved, may well include provisions as to payments to be made by such guarantor. This is perhaps the reason that Annexure VI(e) to Form 6 contained in the Rules and Regulation 36(2) referred to above, require information as to personal guarantees that have been given in relation to the debts of the corporate debtor. Far from supporting the stand of the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive Date 3 Other Financial Creditors Nil Nil Nil 4 Operational Creditor A Employee and Workmen NIL NIL NIL B Other Operational Creditor NIL NIL NIL C Other creditors NIL NIL NIL Total Rs. 5,58,00,000/- 17. CIRP Cost has been estimated at an amount of Rs. 5,58,00,000/- (Rupees Five Crore Fifty-Eight Lakh Only) and in pursuance of the scheme of resolution as envisaged by the Code, the Resolution Plan provides for the payment of the CIRP costs in priority over payments to any other creditors. Such payment would be made from the fresh funds infused by the Resolution Applicant within 30 days form the Effective Date. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is also submitted that the Financial Creditors shall be at liberty to proceed against the properties of the Promoters erstwhile Directors/Guarantors other than those mentioned above to recover their balance. 10. Thereafter, the Adjudicating Authority referred to Sections 30 and 31 of the IBC as well as Regulations 38 39 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulation, 2016 ( CIRP Regulations for short) and concluded in Para 21 that mandatory contents of Resolution Plan have been complied with, inter alia Adjudicating Authority went on to give direction in Para 26 of the impugned order as under:- 26. It is directed that Mrs. Megha Nitin Naik and Mr. Nitin Chandrakant Naik, the owners of the premises as mentioned above and the Corporate Debtor, shall enter into Tripartite Agreements (with the Financial Creditors), for transfer of the premises (as mentioned in paragraph 18 of this Order) to the Resolution Applicant in compliance with the decision of CoC. 11. It appears that the Adjudicating Authority at the time of passing such impugned order on 13.11.2019 also passed orders in M.A 3486/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, specifying which of the guarantors is a related party. Thus reference to details of Guarantees given by Related Party has to be there. That reference does not make property of Guarantor a property of Corporate Debtor for which Section 36(2) (a) is there. If this is kept in view when we have perused copy of the Information Memorandum (Annexure-D) filed by Respondent No.3- Resolution Professional, we find that inter alia the Information Memorandum first referred to the brief background of the Corporate Debtor which mentions that the Leave and License Agreement of Respondent No.1- Successful Resolution Applicant was terminated by a Deed of Cancellation on 22.01.2018 but however, Sanidhya Industries Pvt. Ltd. (now Successful Resolution Applicant) has continued to remain in possession of the said premises and that the Corporate Debtor has not been able to refund the security deposit etc. The Information Memorandum has page with the title Comparative Balance Sheet of Simrut Foods Technologies Private Limited (?)- (It is not made clear if this name referred is earlier name of the Corporate Debtor) which reads as under : - COMPARATIVE BALANCE SHEET OF SIMRUT FOODS TECH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,64,840 (1,07,334) Other Current Assets 5,21,52,934 5,21,52,934 5,21,83,903 Total 6,18,28,707 6,19,02,173 6,64,42,747 14. Then there are particulars of debt due from or to related parties including Appellant No.1 and Note-3- Security Details is at page 63 of the Information Memorandum, which reads as under:- Note-3-Security Details Account No Property Details Valuation date and amount 3171/234 to 3171/237 and 4175/118 All that piece and parcel of the city survey no 1025+1024B in building silver prestige, ground floor, Shop No 3,4 5 in silver prestige condominium situated at Shukrawar Peth, Pune, Taluka-Haveli. 03/10/2014 1,39,13,000/- And 2,09,25,000/- Total 3,48,38,000/- First floor commercial offices bearing no 104,105,107,108,201,301 in the building known as Silver Prestige Condominium situated at Shukrawar Peth, Pune, Taluk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f India had issued a notice dated 04.08.2015 under Section 13(2) of the SARFAESI Act. Subsequently, a possession notice was issued under Section 13(4) of the SARFAESI Act. The Respondent No.2 Company filed application under Section 10 of the IBC to initiate the corporate insolvency resolution process against itself and the Application under Section 10 of the IBC was admitted directing Moratorium under Section 14 of the IBC. When such application was pending, Respondent No.1 Personal Guarantor of the Corporate Debtor took up the plea that Section 14 of the IBC would be applicable to the personal guarantor as well and as such proceedings against the Personal Guarantor and his property would have to be stayed. The Adjudicating Authority in that matter held that under Section 31 of the Code, a Resolution Plan made thereunder would bind the personal guarantor as well, and since, after the creditor is proceeded against, the guarantor stands in the shoes of the creditor, Section 14 would apply in favour of the personal guarantor as well. The State Bank of India thus was taken against Respondent No.1- Personal Guarantor. Appeal filed against the order of the Adjudicating Authority came to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear from the perusal of the above paragraphs of the Judgment of the Hon ble Supreme Court is that when Part-III of the IBC had not been enforced, the provisions operating with regard to Personal Guarantors of the Corporate Debtor were- the Presidency Towns Insolvency Act, 1909 , the Provincial Insolvency Act, 1920 and Recovery of Debts Due to Banks and Financial Institutions Act, 1993 . When Resolution Plan was approved in the present matter by the Adjudicating Authority, those provisions under those Acts were as much applicable and if the Financial Creditors had to proceed against the Personal Guarantors, the same would have to be done under those Acts. Respondent Nos. 4 and 5, in fact did initiate actions against Appellants during CIRP but without proceeding further appear to have let pushed in reference to the personal properties of the Personal Guarantors in the Resolution Plan so as to transfer title. This is clear from further perusing the judgment in the matter of State Bank of India v. V. Ramakrishnan Anr. which shows in Para 19, as under:- 19. We are afraid that such arguments have to be turned down on a careful reading of the Sections relied upon. Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Supreme Court in para 22 of the Judgment for the purpose referred to Form-6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Form-6 is with regard to application which is filed by Corporate Applicant (under Section 10 of IBC) to initiate CIRP under Chapter-II of Part-II of the IBC. The Hon ble Supreme Court referred to instructions below Form-6 namely Annexure-VI (e). The same reads as under:- Annexure VI A statement of affairs made up to a date not earlier than fourteen days from the date of application including the following document, namely:- xxx xxx xxx (e) whether any, and if so what, guarantees have been given in relation to the debts of the corporate debtor by other persons, specifying which, if any, of the guarantors is a related party to the corporate debtor and the corporate applicant xxx xxx xxx 19. Thus, the Application under Section 10 of the IBC in Form-6 would require the Corporate Applicant to give such particulars regarding the guarantees. The Hon ble Supreme Court has read these Rules with Regulation 36(2) which we have already referred with regard to the contents to be incorporated in the Inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntors are as mentioned by the Hon ble Supreme Court in para 15 of the judgment in the matter of State Bank of India v. V. Ramakrishnan Anr. . After coming into force of Part-III, now one would have to proceed as per Chapter III of Part-III of IBC. If the arguments of the Respondents were to be accepted, there would have been no need of the earlier provision being maintained. After Part-III is enforced there would be no need of Part-III if properties of the Personal Guarantors could be simply included in the Resolution Plan and disposed directing them to sign the transfer deed as is being done in the present matter. 21. The Hon ble Supreme Court in the Judgment in the matter of Committee of Creditors of Essar Steel India Limited Through Authorised Signatory vs. Satish Kumar Gupta Ors. [Civil Appeal No. 8766-67 of 2019] vide judgment dated 15.11.2019 in Paras 63 to 67 of the Judgment dealt with the topic of Extinguishment of Personal Guarantees and Undecided Claims . The said paragraphs 63 to 67 are reproduced as under:- Extinguishment of Personal Guarantees and Undecided Claims 63. Shri Gopal Subramanium and Shri Rakesh Dwivedi have also appealed against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g but not limited to Encumbrance over assets of the Corporate Debtor, pledge of shares of the Corporate Debtor (other than corporate guarantees and personal guarantees) related in any manner to the Corporate Debtor) to the Resolution Applicant and /or its Connected Persons, and /or banks or financial institutions designated by the Resolution Applicant in this regard, pursuant to the Acquisition Structure, with effect from the Effective Date; - Issue such letters and communications, and take such other actions, as may be required or deemed necessary for the release, assignment or novation of (i) the Encumbrance over the assets of the Corporate Debtor; and (ii) the pledge over the shares of the Corporate Debtor; within 5(five) Business Days from the Effective Date; and - Be deemed to have waived all claims and dues (including interest and penalty, if any) from the Corporate Debtor arising on and from the insolvency Commencement Date, until the effective Date. 65. Shri Rohatgi, learned senior advocate appearing on behalf of Shri Prashant Ruia, also pointed out Section XIII (1)(g) of the resolution plan dated 23.10.18, in which it is stated as follows: Upon the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 31(1), in fact, makes it clear that the guarantor cannot escape payment as the Resolution Plan, which has been approved, may well include provisions as to payments to be made by such guarantor. This is perhaps the reason that Annexure VI(e) to Form 6 contained in the Rules and Regulation 36(2) referred to above, require information as to personal guarantees that have been given in relation to the debts of the corporate debtor. Far from supporting the stand of the Respondents, it is clear that in point of fact, Section 31 is one more factor in favour of a personal guarantor having to pay for debts due without any moratorium applying to save him. Following this judgment, it is difficult to accept Shri Rohatgi s argument that that part of the resolution plan which states that the claims of the guarantor on account of subrogation shall be extinguished, cannot be applied to the guarantees furnished by the erstwhile directors of the corporate debtor. So far as the present case is concerned, we hasten to add that we are saying nothing which may affect the pending litigation on account of invocation of these guarantees. However, the NCLAT judgment being contrary to Section 31(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Part-III has been applied to Personal Guarantors of Corporate Debtor, one would have to resort to those provisions under IBC if Personal Guarantors of Corporate Debtor are to be proceeded against. In Resolution Plan of Corporate Debtor provision relating to right of Financial Creditor to proceed against Personal Guarantor can be there, but enforcement of such right has to be as per provisions of law as discussed. 24. For the above reasons, we hold under Section 61(3) of the IBC that the Resolution Plan as approved by the Adjudicating Authority is in contravention of the provisions of law as discussed above and there have been material irregularities in exercise of powers by the Adjudicating Authority when it directed the Appellants (in para 26 of the impugned order (referred supra)), that the owners of the premises as mentioned in the judgment shall enter into Tripartite Agreements for transfer of the premises (as mentioned in para 18 of impugned order). In fact, if para 18 is seen, after describing the properties in the chart there is also portion added which says that the Financial Creditors shall be at liberty to proceed against the properties of the Promoters erstwhil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2019. This Appeal has been filed raising grounds which we have already discussed while dealing with Company Appeal (AT) (Insolvency) No. 257 of 2020. 28. On 2nd February, 2021 in Company Appeal (AT) (Insolvency) No. 257 of 2020, when the above development was taken up by the Counsel for the Appellants, we had stayed para 26 of the impugned order (against which Company Appeal (AT) (Insolvency) No. 257 of 2020 had been filed). When this Company Appeal (AT) (Insolvency) No. 239 of 2021 was filed, we stayed the impugned order in M.A 919/2020 as per the order dated 31st March, 2021. 29. Having heard parties in both these Appeals, as in Company Appeal (AT) (Insolvency) No. 257 of 2020, we have set aside the impugned order as well as Resolution Plan approved, the present impugned order in M.A 919/2020 would also not survive, we pass the following order:- ORDER The Appeal is allowed. Impugned order passed in M.A 919/2020 dated 28th January, 2021 is set aside. No order as to costs. Common Directions in Both Appeals 30. We make it clear that the orders which we are passing in both these Appeals will not come in the way of the Financial Creditors from taking appropri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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