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TMI Blog2024 (3) TMI 804X X X X Extracts X X X X X X X X Extracts X X X X ..... that mortgage was made by Respondent No.1 of his immovable property to secure the Facilities. The issue directly arose in proceeding under Section 7, as to whether Respondent No.1 stood guarantor to SREI in reference to Financial Facilities extended to ESL, which has been answered by the Adjudicating Authority taking into consideration all relevant facts. Neither the issue was decided in proceedings before Madras High Court or by the Hon ble Supreme Court, nor any such admission can be pressed into service as claimed by the Appellant. The Adjudicating Authority in the impugned order after considering all facts and circumstances of the present case has rightly come to conclusion that Respondent No.1 cannot be held to be guarantor to the Financial Facilities extended by Financial Creditor to the ESL. In paragraph 11 of the judgment of the Adjudicating Authority, detailed consideration and reasons have been given for holding that Respondent No.1 is not guarantor of the Financial Facilities. Whether approval of ESL s Resolution Plan by the Adjudicating Authority led to extinguishment of entire debt of ESL and no claim would lie against Respondent as guarantor/ third party surety in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tainable debt secured or guaranteed by third parties. The finding of the Adjudicating Authority that approval of Resolution Plan has led to extinguishment and effacement of the entire debt of ESL has to be held to be finding qua the Corporate Debtor only. There is no finding recorded by the Adjudicating Authority in the impugned order that after approval of the Resolution Plan, it would lead to extinguishment and effacement of the entire debt of third party including the Corporate Debtor. The order of Adjudicating Authority rejecting Section 7 Application filed by the Financial Creditor upheld - appeal disposed off. - [ Justice Ashok Bhushan ] Chairperson And [ Mr. Barun Mitra ] Member ( Technical ) For the Appellant : Mr. Krishnendu Datta, Sr. Advocate with Mr. Dhruv Dewan, Mr. Rohan Batra, Mr. Prayuj Sharma, Mr. Yajur Sharma, Mr. Rishabh Bhargava, Mr. Rahul Gupta, Mr. Ravi Lochan, Advocates For the Respondent : Mr. Mihir Thakur, Sr. Advocate with Mr. Pulkit Deora, Mr. Shantanu Awasthi, Mr. Hemant Kothari, Mr. Jatin Kapur, Mr. Shikhar Mittal, Advocates JUDGMENT ASHOK BHUSHAN , J. This Appeal by the Financial Creditor challenges the order dated 24.06.2022 passed by National Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29.03.2018. The Adjudicating Authority vide order dated 17.04.2018 approved the Resolution Plan submitted by Vedanta Limited in respect of ESL. (vi) As per the Resolution Plan the total admitted debt of Financial Creditors of ESL was classified as Sustainable Debt and Unsustainable Debt. Sustainable debt was to be paid upfront to the Financial Creditor with the funds arranged by the Resolution Applicant. Total admitted financial debt of the SREI was Rs.577.90 crores. The SREI received an amount of INR 241.71 crores as upfront payment under the Resolution Plan. The Resolution Plan proposed conversion of Unsustainable Debt to new equity shares of ESL having a face value of INR 10/- each and issuance of the same to the Financial Creditors in proportion to their respective portion of the Unsustainable Debt. SREI received 67,23,710 equity shares of ESL having face value of INR 10 per share. On 25.06.2018 SREI issued a No Objection Certificate to ESL confirming the receipt of an amount of INR 241,71,84,839.18 due and payable as the upfront payment by Vedanta Limited and the allotment of 67,23,710 equity shares in ESL. (vii) On 30.06.2018, SREI executed an Assignment Deed in favour of UV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion seeking order of stay or keeping proceedings before it in abeyance until the matter filed ECL before the DRT is disposed of. The said Application was dismissed by the Adjudicating Authority. The Respondent filed Appeal being Company Appeal (AT) ((Ins.) No.159 of 2022 against the said order, which Appeal was also dismissed by this Tribunal. (xii) DRT Chennai vide order dated 08.04.2022 dismissed the Application filed by ECL under Section 17 of the SARFAESI Act. The Appeal against the order dated 08.04.2022 before DRAT was filed, which is said to be pending. (xiii) the Adjudicating Authority heard the parties on Section 7 Application and by the impugned order dated 24.06.2022, rejected Section 7 Application on the ground that Respondent ECL was not a guarantor to the facilities availed by ESL from SREI and as such there was no financial debt, which was owed by the ECL to the Appellant. The Adjudicating Authority further held that due to approval of Resolution Plan of ESL and payment of debt to Financial Creditors under the Resolution Plan, liability of ECL has also extinguished. The order dated 24.06.2022 is under challenge in this Appeal by the Appellant, who were Applicant in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Section 126 and it is a matter of contract between the parties. The covenant as in the present case infuse a specific amount of money into the principal borrower, so that principal borrower fulfills his obligation to the creditor, will constitute a guarantee. The status of ECL is a surety, i.e., the person who has contracted to perform the promise and/ or discharge the liability of ESL in the event of default. It is submitted that payment of Rs.38 crores was directly made by ECL to SREI in July 2017, reinforces the existence of a legal obligation in the form of a guarantee. Shri Datta submits that ECL has admitted its status as a guarantor/ surety before various Forums including the Hon ble Supreme Court. The learned Senior Counsel has referred to pleadings made by the ECL before Madras High Court in the Application filed seeking leave to institute a suit, where ECL admitted that it has stood as a guarantor for the Financial Facilities availed by ESL from SREI. The admissions made to the effect that ECL is a guarantor bind the Respondent. The doctrine of estoppel by conduct applies in full force in the present case and the ECL is now estopped from taking a stance different from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority. It is settled proposition of law that approval of a Resolution Plan does ipso facto discharge the liability of guarantor. The question to be considered by the Adjudicating Authority was as to whether pursuant to the approval of Resolution Plan pro tanto extinguishing the guarantee/ mortgage extended by the ECL or whether the Resolution Plan preserved the ability of guarantee/ security holder lenders to proceed against the guarantors/ mortgagors of ESL. The SREI has received proportionate shares in the Sustainable Debt of INR 241.71 crores as against admitted financial debt of INR 577.90 crores. Under the Resolution Plan against the unsustainable debt, equity shares of ESL having face value of INR 10/- each was to be given. The Resolution Plan contemplated that face value of entire ESL share capital was to be reduced from INR 10/- each fully paid up to INR 0.20 fully paid up. As a result of this reduction in the face value of shares, the paid up share capital of ESL was liable to stand reduced from 10,028.44 crores comprising of 1002.84 crore shares of Rs.10/- each fully paid up to INR 200.57 crores. Thus in lieu of this , the Unsustainable Debt of INR 7619.24 crores, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the obligation of the principal debtor to the creditor, which is not present in Clause of 2.2 of the Undertaking. Section 126 defines a contract of guarantee as a contract to perform the promise of third person in case of his default or discharge of the liability of a third person in case of his default. The obligation under Clause 2.2 is limited to arrange for the infusion of funds into ESL to enable ESL to discharge its obligations. By the undertaking, ECL has made no promise to perform the obligations of ESL or discharge the liabilities of ESL to SREI. Mere obligation to infuse funds to enable a party to discharge its own debt repayment obligations is not a contract of guarantee. Reliance of Appellant on certain cases which referred to see to it type of guarantee is not applicable in the facts of the present case. Undertaking given by Respondent was not see to it type of guarantee. The judgments relied by the Appellant in support of his submission that undertaking as per Clause 2.2 is a guarantee within the meaning of Section 126, are distinguishable and not applicable in the fact of the case. Relationship between ECL and ESL envisaged by sub-clauses 2.3.1 and Clause 2.3.3 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt No.1 stood as a guarantor was in reference to Rupee Loan Agreement with SREI and was not a issue to be decided in those proceedings, nor any such issue was decided by the Madras High Court or the Hon ble Supreme Court. The Hon ble Supreme Court while dismissing the Appeal clarified that it is made clear that we have not expressed anything on merits in favour of either of the parties . The orders passed by the Madras High Court and the Hon ble Supreme Court, thus has no bearing on the issues, which are sought to be raised in Section 7 Application. There is no clear and unequivocal admission by Respondent No.1 accepting his status as guarantor to the Rupee Loan Agreement. The Adjudicating Authority has rightly considered all clauses of different Financing Documents between SREI and ESL and has come to the conclusion that no guarantee was given by the Respondent. Hence, proceeding under Section 7 cannot be initiated by UVARC. 6. Elaborating the submission on debt extinguishment, the learned Counsel for Respondent submitted that the entire debt of Financial Creditors including SREI was recovered, repaid and discharged in full as per the approval of the Resolution Plan in CIRP of ESL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal: (I) Whether the ECL is a guarantor to the SREI for the financial facilities availed by ESL from SREI? (II) Whether approval of ESL s Resolution Plan by the Adjudicating Authority led to extinguishment of entire debt of ESL and no claim would lie against Respondent as guarantor/ third party surety in respect of the financial facilities availed by the ESL? Question No.(I) 10. We may first notice the relevant clauses of Rupee Loan Agreement dated 26.07.2011, Deed of Undertaking, Warranty and Indemnity dated 27.07.2011 and Supplementary Agreement dated 21.11.2021 to find out as to whether the Respondent stood as guarantor to the loan sanctioned by SREI to ESL. 11. The Rupee Loan Agreement was entered between SREI and ESL. The Respondent was Promoter of ESL to which there is no dispute. There were certain undertakings given by Promoter in the Rupee Loan Agreement, which is contained in Schedule IV under the heading Other Terms and Conditions . Schedule IV, with regard to the Promoter undertaking provides To arrange for the infusion of funds in a form manner acceptable to SREI at the end of each financial year to comply with the Financial Covenants in case of breach of such Financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rupee Loan Agreement, Deed of Undertaking and Supplementary Agreement cast an obligation on guarantor/ Respondent to discharge the liabilities of ESL to SREI in reference to Rupee Loan Agreement. Section 126 of the Contract Act, defines Contract of guarantee in following words: 126. Contract of guarantee , surety , principal debtor and creditor . A contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the surety ; the person in respect of whose default the guarantee is given is called the principal debtor , and the person to whom the guarantee is given is called the creditor . A guarantee may be either oral or written. 15. When we look into Clause 2.2 as extracted above it placed an obligation on the Promoter to arrange for the infusion of funds in a form manner acceptable to SREI at the end of each financial year to comply with the Financial Covenants in case of breach of such Financial Covenant. As per Clause 2.3.1 and 2.3.2, additional funds, which were to be provided by the Promoters/ Borrower were by way of equity capital, unsecured loans or deposits. Obliga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the court must realise that the authority floating the tender is the best judge of its requirements and, therefore, the court's interference should be minimal. The authority which floats the contract or tender, and has authored the tender documents is the best judge as to how the documents have to be interpreted. If two interpretations are possible then the interpretation of the author must be accepted. The courts will only interfere to prevent arbitrariness, irrationality, bias, mala fides or perversity. With this approach in mind we shall deal with the present case. 17. Learned Counsel for the Respondent also placed reliance on Information Memorandum issued in CIRP of the ESL, where there was no mention of guarantee. The learned Senior Counsel for the Appellant has tried to counter the said submission on the ground that Information Memorandum was issued with a disclaimer that Information Memorandum is prepared on the basis of materials and documents provided by Ex- Management of ESL. What was understood by ESL with regard to Financial Facility advanced by SREI was also a relevant fact and how the ESL understood the Financing Document, cannot be said to be irrelevant. The Inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to SREI under the Financing Documents; 18. It is relevant to notice that Clause (i) also refer to any writings creating/ evidencing a Security Interest, pledge and/ or guarantee. Reference to Schedule-1 was given and in the Schedule-1, details of guarantor / coborrower is mentioned, which is as follows: 2. Details of guarantor/co-borrower Nil 19. It is also relevant to notice that in Column 10, Details of Security Documents , List of Documents, were also mentioned, which contained the Deed of Undertaking, Warranty Indemnity, which was separately mentioned in Column, 10, which is as follows : 10. Details of Security Documents List of Documents: Sr. No. Particular Date Original/ Copy 1 Declaration and letter of Deposit of Title Deeds November 23, 2011 Original 2 Deed of Hypothecation December 26, 2011 Original 3 Demand Promissory Note July 26, 2011 Original 4 Deed of Undertaking Warranty Indemnity July 27, 2011 Original Documents w.r.t. the mortgage of Land admeasuring about Acres 96.3 Cents with factory building thereon together with all benefits and advantages accruing thereon at elavur Vilage, Ponneri Taluk, Chinglepet District within the Sub-Registration District and comprised in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o make the payments at the rate of 6,000 per week together with the final payment of 4,000 as hereinbefore set out so however that Mr. Moschi s total obligation under this guarantee shall not exceed the total sum of 40,000 of which approximately 3,820 has already been paid as aforesaid . 23. The learned Senior Counsel for the Appellant has relied on judgment of Lord Diplock, where the obligation undertaken by the Appellant was held to be as see to it obligation. The House of Lords held that every case must depend upon the true construction of the actual words in which the promise is expressed. The House of Lords made following observations in the above judgment : It follows from the legal nature of the obligation of the guarantor to which a contract of guarantee rise that it is not an obligation himself to pay a sum of money to the creditor, but an obligation to see to it that another person, the debtor, does something; and that the creditor s remedy for the guarantor s failure to perform it lies in damages for breach of contract only. That this was so, even where the debtor s own obligation that was the subject of the guarantee was to pay a sum of money is clear from the fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement liability is of damages. As noted above, it was held by House of Lords that every case must depend upon the true construction of the actual words in which the promise is expressed. As noted above, clauses of agreement have to be interpreted on the basis of contemporaneous understanding of the parties and subsequent actions. In the present case, we have noticed that the SREI never contemplated that any kind of guarantee was given by Respondent- ECL. 25. The next judgment relied by learned Senior Counsel for the Appellant is McGuiness v. Norwich and Peterborough Building Society - [2011] 1 WLR 613. In the above case, facts have been noticed in paragraph 3 of the judgment, which are as follows: 3. The Guarantee, dated 10 September 2008 and made on the Respondent's standard form, contained the following relevant provisions: 2. GUARANTEE AND INDEMNITY 2.1 In return for our lending, agreeing to lend or continuing to lend money, or granting credit facilities, to the Borrower you accept the liabilities set out below. These liabilities are unconditional and you cannot withdraw from them, except as set out in Clause 5. 2.2 You guarantee that all money and liabilities owing, or bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebtor, but (among other things) that any debt due is immediately payable by the guarantor without prior demand upon him: see MS Fashions case [1993] Ch 425. 27. The above case is also clearly distinguishable and does not help the Appellant in the present case. 28. Another case relied by Appellant is Shanghai Shipyard Co. Ltd. vs. Reignwood International Investment (Group) Company Limited 2021 EWCA Civ 1147. The Court of Appeal judgment noticed the distinction between manner, invocation and trigger of liability to see to it and on demand guarantee. The judgment of the House of Lords in Moschi (supra) was also relied and noted. The terms and conditions of Agreement between the parties has been noted in the judgment. The terms clearly mentions that guarantee is given as a primary obligor and not merely as the surety. The terms have been noted in paragraph 8 of the judgment, which are to the following effect: IRREVOCABLE PAYMENT GUARANTEE To: Shanghai Shipyard Co., Ltd 1. In consideration of your entering into the Shipbuilding Contract with [Reignwood] as the buyer ( the Owner ) for the construction of one (1) self propelled drill ship with Shipyard's Hull No. S6030 ( the Drillship ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced the security document in third column and following was noticed: 6. Security x x x Letter of Comfort from ZEEL signed by any Board Member to support ATL's aforesaid obligations; undertaking to the Lenders To support ATL by infusing equity/debt for meeting all its working capital requirements, best requirements, business expansion plans, honouring put options, take or pay agreement and guarantees; x x x 31. The Bombay High Court examined the Letter of Comfort, which came for consideration and held that support in form of infusion of equity/ debt into ATL, does not amount to guarantee. In paragraph 50 to 53, following was held: 50. Dr Tulzapurkar is right in this much : the form a guarantee takes is immaterial. But that only goes part of the required distance. I put no value to Zee's assertion of there being no privity . This seems to me to be the kind of typically unthinking catch-phrase thrown out when a demand is made. Of course there is some privity; the question is whether there is a privity of a contract of guarantee - for that is the claim. A guarantee creates a very specific type of obligation. It undertakes and assures the repayment of another's debt on the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be considered is exhibit P14 which read thus: We understand you have sanctioned a corporate loan of Rs. 75 lakhs (rupees seventy five lakhs only) vide your letter ACCTS/CL/7842/95-96, dated February 29, 1996, to M/s. Dominion Chemical Industries Ltd., Hosur Road, Bommanahalli, Bangalore-560068. M/s. Dominion Chemical Industries Ltd., is one of our associate companies. We hereby confirm that it our normal practice to see that all our associates companies meet their financial and contractual obligations and this end we will undertake all reasonable steps to ensure that M/s. Dominion Chemical Industries Ltd., conducts its operations efficiently to meet its obligations in the usual course of business. We are convinced that the company concerned has the capabilities to fully cater to its financial commitments. 34. The Letter of Comfort, which was examined by the Karnataka High Court was held not as a guarantee. In paragraph 6, 7 and 9, following was held: 6. The said letter of comfort nowhere reveals that the appellant stood as guarantor for the loan disbursed by respondent No. 1 in favour of respondent No. 2. It merely states that the associate company (debtor company) will meet th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the first respondent. 35. The Karnataka High Court held that the Agreement nowhere reveals that the Appellant stood as guarantor for the loan disbursed by Respondent No.1 in favour of Respondent No.2 in case of default. In the facts, of the present case also, there is no undertaking by Respondent No.1 to discharge liability of ESL and that it would repay the loan of ESL in case of ESL fails to discharge its liability. 36. The learned Counsel for the Respondent has also relied on Delhi High Court judgment in Aditya Birla Finance Limited vs. Siti Networks Limited and Ors. (2023) SCC OnLine Del 1290. In paragraph 26 of the judgment, the letter, which was claimed to be a guarantee has been extracted, which is as follows: 26. It is stated that pursuant to this, the respondent Nos. 2 and 3 issued the alleged Letters of Guarantee dated June 26, 2018 to the petitioner, inter alia stating the following: a. We are aware that Aditya Birla Finance Limited (ABFL) has sanctioned and disbursed a Rupee Term Loan Facility of INR150,00,00,000 (Rupees One Hundred and Fifty Crore) [-Facility ] to our group company, Siti Networks Limited, pursuant to Credit Arrangement Letter dated January 16, 2017 be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt seeking leave to institute a suit challenging the SARFAESI proceedings, in which proceedings, pleadings made by Respondent No.1 has been referred to. The learned Senior Counsel has referred to his written submission filed before the Adjudicating Authority, where an affidavit on behalf of Respondent No.1 before the Madras High Court has been relied as admission. It is submitted that Respondent in the affidavit has mentioned that Plaintiff/ Applicant stood guarantee for the financial assistance. Reliance has been placed on paragraphs (II) and (III) of the affidavit filed before the Madras High Court in C.S.(D) No.18962 of 2019, which are as follows: (II) Plaint filed on behalf of CD before the Madras High Court in C.S(D) No. 18962 of 2019 on or around June 2019 20. The Plaintiff, being a surety, its liability is only accessory and secondary. The provisions of the Contract Act, dealing with discharge of a surety are not exhaustive. A voluntary quantification and crystallization of the balance as between creditor and principal debtor undoubtedly discharges the creditor pro tanto. (para 20 @ 13 of IA (I 8) No. 104/C8/2022) ( emphasis supplied ) (iii) Application filed u/s 17(1) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2 @73 of IA (18} No. 104/C8/2022} ( emphasis supplied } 43. The learned Counsel for the Respondent has submitted that submissions in the affidavit and pleadings, which are relied on by the Appellant were made in context of proceedings initiated by UVARC under SARFAESI Act. It is admitted that under SARFAESI Act, immovable property was mortgaged by Respondent No.1 and proceedings were initiated for enforcing the said security under SARFAESI Act. Hence, pleadings made by Respondent No.1 have to be looked in the background that proceedings were initiated by UVARC for enforcement of security. Admittedly, a mortgage was made of the immovable property by Respondent No.1, hence, the said pleadings were in reference to mortgage of the immovable property. The learned Counsel for the Respondent has also relied on certain affidavits filed before Madras High Court, where as per the Respondent, the pleadings were explained. Reliance has been placed on the rejoinder affidavit filed on behalf of Respondent No.1 to the counter of UVARC wherein in paragraph 17, following has been stated: 17. With reference to paragraph 16 of the Reply, it is submitted that the obligations of the 1st Respondent t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Respondent No.1 to institute a suit. Leave was declined on the ground that as per provisions of SARFAESI Act, suit is barred. The question as to whether Respondent No.1 stood guarantor to the Financial Facilities extended by SREI to ESL was neither gone into, nor decided. The learned Counsel for the Respondent has rightly referred to following observations of the Hon ble Supreme Court in the SLP, which was filed against the order of the Madras High Court, refusing to institute the suit, where the Hon ble Supreme Court observed following in paragraph-9: It is made clear that we have not expressed anything on merits in favour of either of the parties 46. In view of the above, we are of the considered opinion that the submission of the Appellant cannot be accepted that there was clear and categorical admission of Respondent No.1 in the pleadings before Madras High Court and the Hon ble Supreme Court that Respondent No.1 stood guarantor of the Financial Facilities extended by SREI to ESL. As noted above, the pleadings made in those proceedings have to be looked into the background that Application for Leave was filed in the Madras High Court seeking leave to institute a suit, chall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 is a dummy step and the ultimate effect on their claim shall come into effect after Step 2, wherein the face value of shares gets reduced from Rs.10/- to Rs.0.20. However, this Tribunal notes that such capital reduction has been effected in terms of the approved resolution plan. Step 2 is a subsequent step which can be effected only after completion of Step 1 and at Step 1 level only all the sustainable as well as unsustainable debt of the financial creditors including that of SREI gets discharged. Therefore, once the sustainable and unsustainable debts have been discharged as aforesaid at Step 1 level only, FC cannot make a claim based on capital reduction implications, which is a subsequent step in terms of the approved resolution plan. Since, without implementing step 1, the step 2 cannot be implemented in terms of the Resolution Plan, therefore, the claim of FC that on conversion of the balance debt of ESL into enquiry shares under the Resolution Plan on 06.06.2018, SREI did not receive any equity shares of Rs.10/- for its entire share of the balance debt being Rs.336.18 Crore is not true as is evident from the documents and relevant details produced by the CD. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approval of Resolution Plan discharge guarantor or third parties or not. The learned Senior Counsel for the Appellant has relied on Clause 3.2 of the Resolution Plan, under heading Proposal for Workmen and Financial Creditor . Sub-clause (ix) of Clause 3.2 has been relied, which clearly mentions that Company shall stand discharged of any default, but on the same time it has been mentioned that any rights against any third party shall not be extinguished. It is relevant to extract following relevant part of sub-clause (ix) : Furthermore, the Company shall stand discharged of any default or event of default under any loan documents or other financing agreements or arrangements (including any side letter, letter of comfort, letter of undertaking etc.) and all rights/ remedies of the creditors shall stand permanently extinguished except any rights against any third party (including the Existing Promoter) in relation to any portion of Unsustainable Debt secured or guaranteed by third parties. Furthermore, it is hereby clarified that upon approval of the Resolution Plan by the NCLT, . 52. The learned Senior Counsel for the Appellant has also referred to the Minutes of the 9th Meeting of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded securities are no longer enforceable, repelling the contention, following was held in paragraph 16 and 18 of the judgment: 16. The view which was taken by the Adjudicating Authority both in the Order dated 03.02.2022 approving the Resolution Plan and Clarification Order was that in view of the fact that unpaid debt shall stand converted into non-convertible redeemable preference share hence the excluded securities are no longer enforceable. The Adjudicating Authority held that excluded securities are subsumed under Clause 3.3.(iii). The Adjudicating Authority obviously referred to Paragraph 3.3. (e) (H) which provided that balance Financial Debt forming part of the Admitted Debt shall stand converted into non-convertible redeemable preference shares of the company which shall be issued to the Financial Creditors upon conversion of the unpaid debt. The above provision in the Plan for conversion into nonconvertible redeemable preference shares of the balance financial debt has no bearing on specific provisions in the plan by 3.3.(iii)(g) which clearly provided that excluded securities shall not be extinguished or waived under this Resolution Plan. When the Resolution Plan itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aising objection, shall not make any difference and any objection by the Respondent, cannot be allowed to sustain, in view of the clear and categorical Clause 3.2 (ix) of the Resolution Plan. The judgment support the submission of the Appellant that even if the debt was converted into non-convertible redeemable preference shares, like equity shares in the present case, securities can be excluded. 56. We, thus, are of the view that in view of Clause 3.2 (ix) of the Resolution Plan, when read in the light of the CoC Meeting dated 29.03.2018, which throws considerable light on the meaning and content of Clause 3.2 (ix), the submission of the Respondent cannot be accepted that after approval of Resolution Plan, the entire debt stand extinguished and no recourse can be taken by the Financial Creditor against third party. 57. As noted above in Question (C), which was framed by the Adjudicating Authority was Whether the approval of the Resolution Plan has led to extinguishment and effacement of the entire debt of ESL (including the liability owed by the CD) . Although, the Adjudicating Authority has returned the finding in paragraph 15 as noted above that approval of Resolution Plan has l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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