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TMI Blog2024 (8) TMI 477X X X X Extracts X X X X X X X X Extracts X X X X ..... h 3, 2020, the Wilful Defaulter Identification Committee declared the petitioner and the borrower company to be Wilful Defaulters. 3. A challenge was preferred against the same by the petitioner before this Court, upon which, by an order dated January 27, 2022, this Court granted a liberty to the petitioner to take all points raised by him before the Review Committee. 4. Accordingly, the petitioner filed a representation before the Review Committee and ultimately the said Committee, by an order dated December 30, 2022, affirmed the decision of the first Committee, thereby declaring the petitioner to be a Wilful Defaulter. 5. In the meantime, the borrower company was admitted to Insolvency Resolution under the IBC on September 30, 2019. On April 7, 2021, the Resolution Plan was approved by the National Company Law Tribunal (NCLT). 6. Learned counsel for the petitioner contends that the petitioner, in the capacity of personal guarantor, is not liable to the SBI (respondent no.1-Bank) after assignment of the remaining portion of the debt to one DRP Trading and Investment Private Limited, a Non-Banking Financial Company (NBFC) under the approved Resolution Plan of Laser Power and I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for all purposes. Learned counsel places particular reliance on various clauses of the said Plan in support of such contention. 14. It is next argued by the petitioner that the assignee is not a "Lender" as per the definition in Clause 2.1 of the Master Circular. 15. It is further contended that as per the Master Data of DRP Trading and Investment Private Limited, one Purusattam Dass Goel is one of its Directors while the Master Data of laser Power and Infra Private Limited (the successful Resolution Applicant) shows that one Deepak Goel is one of its Directors. Again, both of them are Directors of a sister concern of the successful Resolution Applicant. Thus, the Successful Resolution Applicant and the sister concern namely one Laser Aluminium Company Limited, are essentially companies run by the Goel family members. 16. Learned counsel also contends that the proceedings initiated against the petitioner under the concerned Master Circular is not a proceeding in rem. Citing Vidya Drolia and others v. Durga Trading Corporation reported at (2021) 2 SCC 1, It is argued that actions which determine the interest of parties themselves in the subject-matter of the case are actions in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Wilful Defaulter proceedings could not have been initiated against the petitioner, as the said Clause specifically states that such proceedings against personal guarantors could be initiated only in respect of guarantees which were given on and after September 9, 2014, which was included in the Master Circular dated July 1, 2014 by way of amendment dated September 9, 2014. 21. The provision as to prospective effect has been retained in the current Master Circular dated July 1, 2015. In the instant case, it is submitted that the guarantees were given by the petitioner prior to September 9, 2014, which was the cut-off date. 22. Learned counsel for the petitioner thereafter argues that declaration of the account of the corporate debtor as NPA (Non-Performing Asset) could not have preceded the purported event of defaults on the basis of which the petitioner has been deemed as a Wilful Defaulter. It is contended that the allegations of default in the present case are subsequent to declaration of the said account as NPA and as such, not tenable in the eye of law. It is further argued that for commission of wilful default in terms of Clause 2.1.3, there has to be a default in the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the present assignment is not an absolute assignment. The debt was not split but both the mortgage and assignee are eligible to attempt recovery of the dues. 32. Upon assignment of debt to DRP Trading and Investment Private Limited, the assignee becomes the creditor for that portion of debt which is so assigned and the SBI may endeavour to recover the rest portion of the unassigned public debt from the guarantors. 33. Learned counsel for the Bank argues that in the case of Lalit Kumar Jain (supra), it was held the release or discharge of a principal borrower from the debt owed by it to its creditors by an involuntary process, that is by operation of law, or due to liquidation or insolvency process, does not absolve the surety/guarantor of his/her liability arising out of an independent contract. 34. The terms of the Resolution Plan are also required to be looked into, it is submitted. Learned counsel for the bank relies on the Resolution Plan itself in support of such submissions. It is reiterated that the bank could recover only a fraction of its dues by the assignment. 35. Since the Resolution Plan in the present case excludes personal guarantees from the purview of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tled to proceed against the petitioner/guarantor. 44. In ICICI Bank Ltd. (supra), the context of consideration was different from the present case. There, the Supreme Court observed that debt due and payable by the borrower is an asset in the hands of the bank as a secured creditor or mortgagee or hypothecatee and that the bank can always transfer its assets. Such transfer, it was held, in no manner affects any rights or interest of the borrower. 45. In the present case, such ratio is not relevant, since no question has arisen as to whether the rights or interest of the borrower are affected by the assignment. Thus, the ratio of the said judgment need not be looked into in the present context. 46. In Hutchens (supra), the High Court of Australia clarified that it is impossible to assign the debt while retaining the benefit of a guarantee and thereby convert one debt owing to one creditor by both the principal debtor and guarantor into two debts. The Delhi High Court considered the said judgment in Vineet Saraf (supra). In Vineet Saraf, the court considered whether the dictum of Hutchens (supra) is constrained by the peculiar facts of the case or is a general pronouncement on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existing promoters of the Company shall be assigned to the NBFC Company. The approval of this Resolution Plan by the NCLT shall be deemed to have all the approval for procedural requirements in terms of relevant Section of the CA 2013 and Rules and RA will comply with all the procedural requirements, if required. It is hereby clarified that this Resolution Plan does not deal with personal Guarantors or Corporate Guarantors given by other person other than company. It should be noted that, Company and/or RA shall be immune from any subrogation right by whatsoever nature arising out of enforcement of such Guarantee/obligation. ................... Step 7: Conversion of Assigned Debt into Preference Share RA proposed to convert the part of the assigned debt as mentioned in step 4. into Preference Share with Face Value of Rs.10 each, which shall be issued to NBFC The nature of the Preference Shares to be decided at the time of implementation of the Step. Implementation of this step is the sole discretion of the Resolution Applicant and purely based on business need. The approval of this Resolution Plan by the NCLT shall be deemed to have all the approval for procedural requirem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assignee and no longer to the bank. 56. As regards the personal guarantors, the assignment does not take into account or include the liabilities of such entities. The obvious fallout is that the financial creditors, including the SBI, retain the right to recover the debt from the personal guarantors. 57. A dichotomy which seemingly arises at the first blush in such a scenario is that, in the same breath, the assignee, to whom the entire debt has been assigned, can recover the debt from the CD whereas in respect of the same debt, the original financial creditors can simultaneously recover the same debt from the personal guarantors, which is absurd, since the self-same debt, in such case, would be mutated into two separate debts for the same amount. 58. However, the said conundrum can be resolved if we consider Step 7 of the Resolution Plan, relating to conversion of the assigned debt into shares. The debt which is assigned to the NBFC is converted by the resolution plan into preference shares with face value of Rs.10/- each, which shall be issued to the NBFC. Thus, the net effect is that the NBFC does not retain the right per se to realize the assigned debt from the corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner that its liabilities are transferred to the assignee is not borne out by the Resolution Plan and the corresponding provisions of the IBC. 68. Having held so, some of the other issues raised by the petitioner become academic, which are dealt with below nevertheless. 69. For example, the petitioner has raised an issue that the assignee cannot be a 'lender ‟ within the contemplation of the Master Circular of 2015. Although such question does not arise in the present case in view of the above observations, such proposition is also erroneous in law. The definition of 'lender ‟ in the Master Circular focuses on all Banks/Financial Institutions to which "any amount is due" . The expression "is due", thus lends a present continuous element to the liability. The reference frame is not the initial point of grant of loan but the continuous liability of the debtor. Hence, the term "lender" cannot be confined to the initial financial creditor which granted the loan but also covers any subsequent assignee of the loan or any entity having, at a given point of time, the right to recover such loan. Thus, even an assignee of a loan comes within the purview of "lender" as cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verse is also true, that is, if the borrower, despite having the means, fails to repay the loan and continues the violations as envisaged in Clause 2.1.3 read with Clause 2.2 of the Master Circular, there is no bar in declaring the borrower and the other entities contemplated in the Master Circular as Wilful Defaulters. 76. Accordingly, there was otherwise no bar in the Respond No.1-Bank (SBI), from continuing with the Wilful Defaulter proceeding against the petitioner even after the approval of the Resolution Plan of the borrower-company by the NCLT, since it also retained the corresponding right to recover the loan, although not from the CD-company, from the guarantors, including the present petitioner. 77. However, all said and done, the petitioner in the present case, as a guarantor, is saved by a whisker, the saving grace being the date when it entered into the guarantee agreement. The bank, in its written notes, has categorically admitted that the deed of guarantee was executed on March 28, 2014. 78. The bank seeks to interpret Clause 2.6 of the Master Circular in a manner that the said clause would be applicable to guarantees on and from September 9, 2014, even if the gua ..... X X X X Extracts X X X X X X X X Extracts X X X X
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