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TMI Blog2024 (4) TMI 866X X X X Extracts X X X X X X X X Extracts X X X X ..... oC had duly considered and deliberated upon the valuation reports before deciding not to have any report from a third valuer. That being the considered business decision of the CoC, the supremacy of the commercial wisdom cannot be questioned by the Appellants. In fine, there are no infirmity in the conduct of the valuation exercise. Tenability of the contention of the Appellants that the resolution plan by allowing the lenders of the Corporate Debtor to pursue the personal guarantees given by the Appellant was in violation of law as after the transfer of debts, the liability of the Corporate Debtor would stand extinguished - HELD THAT:- The Appellant was never discharged from its liability qua the personal guarantees under the resolution plan. Moreover, under Section 128 of the Contract Act, the liability of the borrower and guarantor are coextensive and the lender can choose to recover the outstanding shortfall amount from either of them. The contract of guarantee is an independent contract from the Loan Agreement and hence the contract of guarantee does not end if the borrower has failed to discharge the entire liability. Now when we apply the ratio of the judgement of the Hon bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch has been approved by the CoC on 26.02.2020 with 99.69% vote share. Furthermore, in the present case, no grounds have been made that resolution plan approved by the CoC and the Adjudicating Authority violates any of the provisions of Section 30(2). Hence the resolution plan passes the muster - Given that the CoC has considered the resolution plan and passed the same with requisite majority and given the well settled legal position that the Adjudicating Authority has limited scope of judicial review available to it and cannot interfere on merits with the commercial wisdom of the CoC, there was no error committed on the part of the Adjudicating Authority in approving the resolution plan. There are no ground in this appeal to interfere with the impugned order of the Adjudicating Authority approving the Resolution Plan. There is no merit in the Appeal - appeal dismissed. - [Justice Ashok Bhushan] Chairperson And [Barun Mitra] Member (Technical) For the Appellant : Ms. Purti Gupta, Ms. Henna George and Ms. Ashmeet Arora, Advocates For Respondents : Ms. Honey Satpal, Mr. Nipun Singhvi, Mr. Vishal J. Dave, Advocates for R-1. Mr. Krishnendu Datta, Sr. Advocate with Mr. Palash S. Singhv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority for exclusion of time. The Adjudicating Authority on 28.02.2020 allowed the IA No. 173 of 2020 filed by the RP for exclusion of time. The 8th CoC meeting was held on 26.02.2020 in which RP informed the CoC that modified resolution plan was received from two PRAs based on negotiated terms and conditions in the 7th CoC meeting. The modified resolution plans were circulated to all CoC members which was thereafter duly considered and deliberated. The 8th CoC meeting approved the resolution plan of Sudeep Dasani with 99.69% voting share and the RP issued letter of intent to the Successful Resolution Applicant ( SRA in short) on 11.05.2020. The RP filed IA No. 358 of 2020 before the Adjudicating Authority in June 2020 for approval of the Resolution Plan submitted by the SRA. Opposing the Resolution Plan of the SRA, the Appellant being personal guarantor for the debts owed by the Corporate Debtor filed IA No. 434 of 2020 before the Adjudicating Authority challenging the approval of the Resolution Plan. The Adjudicating Authority on 30.03.2022 disposed of the IA 434 of 2020 directing the RP to provide valuation reports to the suspended management of the Corporate Debtor subject to no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the SPV was also in the business of quarrying and not in the IT sector. Further, the SRA having decided to terminate all existing employees, it becomes clear that the intention of the SRA was not to keep the Corporate Debtor running as a going concern. The game plan of the SRA is to sell the showroom spaces of the Corporate Debtor to third party buyers which is the main asset of the Corporate Debtor and not to revive the Corporate Debtor. 6. The Learned Counsel for the Appellants further assailed the impugned order on the ground that the resolution plan did not take into consideration the interest of the personal guarantors in spite of they being critical stakeholders in the CIRP process. It was contended that when the plan contemplated transfer of the loan in the books of the Financial Creditors to the books of the SPV and thus debts were to be transferred in full, it was inconceivable that the banks could still prosecute the guarantors. The plan was also assailed on the ground that it has also taken away the rights of the Appellants in effecting their recoveries from the Corporate Debtor. It was vehemently contended that the right of subrogation available to the personal guaran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oundational basis as nothing has been placed on record to substantiate the allegations. It was also stated that if the RP did not provide copy of valuation report to the suspended board of the corporate debtor initially, it was because valuation reports constituted confidential documents which are to be presented only to CoC members and the Adjudicating Authority and the Appellants were therefore not entitled to it. However, they were subsequently provided with the valuation reports, subject to confidentiality undertaking, on the directions of the Adjudicating Authority in its order dated 30.03.2022 in IA No. 434 of 2020 and hence there was no irregularity on the part of the RP. 11. It was further emphatically asserted that the contention of the Appellants regarding extinguishment of personal guarantees was misconceived and misplaced. It was pointed out that if any resolution plan provides for right of recovery from old guarantors with respect to personal guarantee or any asset mortgaged with financial creditors, the same is to continue with the financial creditors. The right of the financial creditor to enforce guarantees including personal guarantees issued on behalf of the corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration is the propriety of the valuation exercise conducted by the RP. It was contended by the Appellants that the RP did not provide copy of valuation report to the suspended board of the corporate debtor though they were entitled to it. In support of their contention, they have relied on the judgement of the Hon ble Supreme Court in Vijay Kumar Jain Vs Standard Chartered Bank and Ors (2019) 20 SCC 455 wherein it has been held that a combined reading of the IBC as well as the Regulations leads to the conclusion that members of the erstwhile Board of Directors, who are often guarantors, are vitally interested in resolution plans as they affect them and therefore must have access to such documents accompanying the resolution plan. 16. It is further the case of the Appellants that the resolution plan has been approved at a highly undervalued price of about Rs.10 cr as against the value of the Corporate Debtor approximated to be about Rs.78 cr and that such undervaluation goes against the objective of the IBC to further maximisation of the value of assets. It was also pointed out that in spite of there being significant variations in the valuation reports submitted by the two valuers, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stered valuers to determine the fair value and the liquidation value of the corporate debtor in accordance with regulation 35. 35. Fair value and liquidation value. (1) Fair value and liquidation value shall be determined in the following manner: (a) the two registered valuers appointed under regulation 27 shall submit to the resolution professional an estimate of the fair value and of the liquidation value computed in accordance with internationally accepted valuation standards, after physical verification of the inventory and fixed assets of the corporate debtor; (b) if the two estimates of a value in an asset class are significantly different, or on receipt of a proposal to appoint a third registered valuer from the committee of creditors, the resolution professional may appoint a third registered valuer for an asset class for submitting an estimate of the value computed in the manner provided in clause (a). (2) After the receipt of resolution plans in accordance with the Code and these regulations, the resolution professional shall provide the fair value, the liquidation value and valuation reports to every member of the committee in electronic form, on receiving an undertaking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a big difference in both set of valuers. Third valuers to be appointed to value the asset of the CD if required. Copy of the minutes of 6th CoC meeting is attached and marked as Annexure-2 3. Thereafter on 13.02.2020 RP conducted 7th CoC meeting and placed all reports before CoC as report of valuation of Security Financial Assets from Ms. Dipali Raval was received on 10.02.2020 and CoC members discussed the valuation reports. After considering all the reports provided by the RP CoC was of the view that as there is no significant difference in valuation of the both the valuers therefore, appointment of 3rd valuer is not required. Copy of the minutes of 7th CoC meeting is attached and marked as Annexure-3. (Emphasis supplied) 21. It is clear from the above-cited CIRP Regulations that Regulation 27 provides for appointment of two registered valuers to determine the fair value and liquidation value of the corporate debtor in accordance with Regulation 35. Further Regulation 35(1)(b) provides that only when the two estimates of a value in an assets class are significantly different, or on the specific proposal of the CoC, that the RP may appoint a third registered valuer. In the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any infirmity in the conduct of the valuation exercise. 25. The second issue which requires to be addressed is the tenability of the contention of the Appellants that the resolution plan by allowing the lenders of the Corporate Debtor to pursue the personal guarantees given by the Appellant was in violation of law as after the transfer of debts, the liability of the Corporate Debtor would stand extinguished. It was also vehemently contended that the right of subrogation available to the personal guarantors cannot be taken away by the resolution plan and that the Appellants cannot be denied the opportunity to effectuate their recoveries from the Corporate Debtor. It was contended that the resolution plan was contrary to the settled proposition of law as laid down by this Tribunal in the case of KV Jayprakash vs SBI in CA (AT)(Ins) No. 362 of 2022 wherein it is held that the guarantor will continue to have recourse towards the Corporate Debtor as a creditor for the claims invoked under the guarantee. 26. It is however the contention of the SRA that that the resolution plan clearly provided that the Resolution Applicant and PAC shall have no right of recovery from old promoters, dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the above stipulations contained in the resolution plan, we find that the resolution plan categorically stipulates that the SRA proposes to buy the debt of the Corporate Debtor which in no manner can discharge the personal guarantors from its liability towards the Financial Creditors. The resolution plan also stipulates that the right to recover from old promoters, directors and guarantors with respect to personal guarantee shall continue with the Financial Creditors. Thus, the Appellant was never discharged from its liability qua the personal guarantees under the resolution plan. Moreover, under Section 128 of the Contract Act, the liability of the borrower and guarantor are coextensive and the lender can choose to recover the outstanding shortfall amount from either of them. The contract of guarantee is an independent contract from the Loan Agreement and hence the contract of guarantee does not end if the borrower has failed to discharge the entire liability. Now when we apply the ratio of the judgement of the Hon ble Supreme Court in Lalit Kumar Jain Vs UOI and Ors to the present resolution plan, the personal guarantor is not discharged of his liabilities under the contract of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that the Resolution Applicant refers to Mr. Sudeep Dasani, his associates and other persons acting in concern. The same has been placed on record at page 744 of APB. Further, the CoC in the 6th meeting after considering the resolution plan had asked Sudeep Dasani to submit the details of his associates which was complied with by him while submitting the revised resolution plan dated 19.02.2020. The 7th CoC meeting held on 13.03.2020 also noted that the RP had informed that PAC names given by Sudeep Dasani will have to be checked for eligibility as per Section 29A and hence requested for further details on the same. The RP during the CIRP also conducted the necessary compliance under Section 29A of the IBC of all the persons acting in the joint concern as SRA and that these persons also gave an undertaking as required in law is evident from records placed at pages 237-273 of APB. The Adjudicating Authority has also observed at para 22 of the impugned order that certificate regarding the eligibility of resolution applicant under Section 29A alongwith undertaking of the Resolution Applicant to this effect has been filed. It is therefore clear that the SRA did not conceal the fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the lenders meeting was conducted by the Resolution Professional on 02.08.2022, in the said meeting, following points were decided by the CoC members: i. All the CoC members except American Express is in the favor of the resolution plan as on date which was approved in 2020 based on the feasibility of the resolution plan considering all the factors as per IBC, 2016. Therefore, CoC with 99.69% voting share wants to continue with the resolution plan. ii. CoC authorized lead bank-Bank of India to submit affidavit in compliance of order of the Court dated 20.07.2022. 22. It is further noted that certificate regarding the eligibility of resolution applicant under Section 29A alongwith undertaking of the Resolution Applicant to this effect has been filed. We have also perused the contents of Resolution Plan, and are of the view that all requirements provided under Section 30(2) of IBC, 2016 and Regulation 36 to 39 of CIRP Regulations, 2016 have been compiled with. We also find that the Resolution Plan addresses the cause for default and also contains measures to run the Corporate Debtor in future. We also find that Resolution plan is both feasible and viable as held by CoC and it a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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