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TMI Blog2024 (5) TMI 469X X X X Extracts X X X X X X X X Extracts X X X X ..... construction Company Limited vs. Electrosteel Castings Limited [ 2024 (3) TMI 804 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI ] is considered where one of the questions arose as to whether by approval of Resolution Plan, entire debt of the Corporate Debtor stood extinguished and as a result there will be no default. It was held by this Tribunal that even after approval of Resolution Plan, recourse against third party can be resorted to and the approval of Resolution Plan, does not extinguish the right of Financial Creditor to proceed against third party. The Adjudicating Authority by the impugned order has admitted Section 95 Applications, upholding the initiation of proceeding under Section 95 by the SBI. The Adjudicating Authority has rightly returned a finding that the Resolution Plan of Corporate Debtor was approved and the entire debt of the Corporate Debtor has been taken over by the Successful Resolution Applicant, but the guarantee given by the Promoters has not been assigned to SRA. The Adjudicating Authority also held that Application was filed within limitation. The date of default mentioned in the Application was 23.01.2019 and the petition u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21, Statutory Demand notice was issued by the SBI to the Appellant after invoking the personal guarantee. (iv) In Corporate Insolvency Resolution Process ( CIRP ) of the Corporate Debtor, the Adjudicating Authority vide order dated 26.04.2021 approved the Resolution Plan of one Bharat Forge Ltd. (v) Applications under Section 95 was filed by the Financial Creditor against the Personal Guarantors being CP(IB) No.100/ NCLT/ AHM/2021 (in Company Appeal (AT) (Insolvency) No. 742 of 2024) and CP(IB) No.92/ NCLT/ AHM/2021 (in Company Appeal (AT) (Insolvency) No. 743 of 2024), in which Applications, RP was appointed. The RP filed its Report recommending the admission of the Applications. The Personal Guarantors filed affidavit in reply, raising various objections. The Adjudicating Authority heard the parties and by the impugned order dated 27.02.2024 admitted the Applications. (vi) Aggrieved by which order, these Appeals have been filed. 4. The learned Counsel for the Appellant(s) challenging the order dated 27.02.2024, admitting Section 95 Applications, contends that Adjudicating Authority committed error in admitting Section 95 Applications, whereas after approval of the Resolution Plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thirty One Thousand Eight Hundred Eleven and Sixty Paisa only) As on 12.04.2021. Total dues: Rs.137,64,76,599.15/-(Rupees one Hundred Thirty Seven Crore Sixty Four Lakhs Seventy Six Thousand Five Hundred Ninety Nine and Fifteen Paisa only) (As on 12.04.2021 along with accrued interest penal interest and Legal/ other expenses) In the event of successful implementation of the Resolution Plan approved by the Hon'ble Adjudicating Authority vide order dated 26.04.2021 passed in lA 143/2021 in CP (IB) No.197/2018, the claim of Financial Creditor will be reduced by the amount received from the Resolution Applicant. 7. From the pleadings in the Appeal, it is clear that in the Appeal itself, the Appellant quoted the relevant provisions of approved Resolution Plan. Clause 36 of the approved Resolution Plan as extracted at page-14 of the Appeal is as follows: 36. paragraph No. 7.1 of Schedule 2 (Implementation Provisions) as contained in the Resolution Plan is hereby deleted and replaced with the following new paragraph 7. 1: 7. 1 On the Payment Date after completion of Step 6, the dues owed to the Secured Financial Creditors by the Corporate Debtor (ie the Total Secured Debt) shall be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... default will be reduced by Rs. 46,71,99,997/-. 14. It is admitted fact that the Resolution Plan of CD was approved and the entire debt of the Corporate Debtor has been taken over by Successful Resolution Applicant but the guarantee given by the promoters has not been assigned to SRA. The personal guarantor thereby has not been freed of his guarantee for the debt payable. It is noted under section 128 of Indian Contract Act, 1872 that when a default is committed the Principal Borrower and Surety are jointly and severally liable to Creditor and Creditor has the right to recover its dues from either of them or from both of them simultaneously. 17. The Hon'ble Supreme Court in its judgment in Lalit Kumar Jain V Union of India Ors held that the release or discharge of a principal borrower from the debt owned by it to creditor by an involuntary process, i.e. by operation of law, or due to liquidation or insolvency proceedings, does not absolve the surety I guarantor of his or her liability, which arises out of an independent contract. 9. The judgment of the Hon ble Supreme Court in Lalit Kumar Jain vs. Union of India Ors. (2021) 9 SCC 321 has categorically laid down that approval of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her recourse against the Corporate Debtor. But the question as to whether debt of personal guarantor or third party which arises out of different contract shall also automatically extinguished after the approval of Resolution Plan is a question to be answered in the present case. As noted above, the law laid down by the Hon ble Supreme Court is categorical that approval of a Resolution Plan does not ipso facto discharge a personal guarantor. We have to look into the Resolution Plan to find out as to whether 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 (inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013 and 22.01.2015). 12. In the writ petition, the petitioner has prayed for writ of prohibition, preventing the Respondent from approaching the concerned NCLT under the provisions of the IBC and the demand notice so issued was prayed to be quashed. In wake of the aforesaid prayers in the writ petition, the Hon ble Delhi High Court proceeded to examine various submissions, including the law with regard to rights of the Guarantors. The Delhi High Court ultimately took the view that prayers made in the writ petition cannot be granted and NCLT must carefully examine law on assignment, contract of surety and the applicability of judgment of Australia High Court in Hutchens. The Delhi High Court rejected the submission of the Appellant that rights under Article 14 of the Constitution of India has been violated. Ultimately, Delhi High Court dismissed the writ petition and laid down following in paragraph 160 to 163 : 160. It is not the case that the reliefs prayed for cannot be granted by the concerned NCLT. The petitioner's claim of the guarantor getting a right to be heard at a belated stage, is not sufficient to entertain the present petition. The legislature, in its wisdom, thou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... final judgment for possession of the land and thereby precluded the matter going to trial. 15. The High Court of Australia took the view that facts are complicated and evidence is unsatisfactory and the matter needs to be remitted for further pleading leading trial in which any outstanding issues of fact may be resolved. In paragraph-2 of the judgment, following observations were made: 2. The facts are complicated and the evidence is unsatisfactory. Since, for the reasons appearing hereunder, we consider that the appeal should be upheld and that the matter should be remitted to the Supreme Court for further pleading leading to a trial in which any outstanding issues of fact may be resolved, it is desirable that we refrain from unnecessary canvassing of the incomplete evidence at present before the Court. It is, however, necessary to indicate the essential factual context within which the issues canvassed on the present appeal arise for consideration. Subject to elucidation and correction by further evidence at the trial, that factual context would appear to be as follows. 16. The High Court of Australia ultimately allowed the prayer, set-aside the judgment and remitted the matter g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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