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TMI Blog2024 (11) TMI 1287X X X X Extracts X X X X X X X X Extracts X X X X ..... not be covered by Financial Debt unless there is any liability in respect of the Guarantee. Thus, Guarantee given by a Guarantor plain and simple cannot be basis for a Financial Debt, unless there is an amount of any liability in respect of such Guarantee. Thus, a Financial Debt will arise only when in respect to Guarantee as covered by Section 5(8)(i) any liability has arisen which is the Statutory Scheme of the IBC - Personal Guarantors claim which obviously will be ₹10 Crore each is accepted the Bank s voting share shall be reduced to only 20% and 3 Guarantors shall be given 20% vote shares each and 1 Guarantor against whom ₹25 Lakhs have been realised, his claim shall be entitled to be accepted, and he shall also be entitled for voting shares of 2.5%. The above interpretation shall lead to reducing the Bank s share to minority, which cannot be the scheme of IBC. The Statutory Scheme is thus clear that for accepting transaction as a Financial Debt, in addition of establishing a Guarantee or indemnity liability in respect of Guarantee has also to be established - The Personal Guarantor while giving the Guarantee for Guarantee of repayment to the loan has guaranteed f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed Central Bank of India about admission of its claim and its eligibility to become Member of the CoC. vi. The 2nd CoC Meeting was convened on 28.05.2020. Central Bank of India was conveyed that its vote share is 51.37%. Central Bank of India vide email dated 22.05.2020 and 24.05.2020, asked several information from the IRP regarding admission of the claims of Unsecured Creditors. vii. Resolution Professional (RP) vide email dated 08.06.2020, sent a Report on the reconstitution of the CoC by adding two more Unsecured Financial Creditors who had given Personal Guarantee to the Applicant Bank to secure the loan taken by the Corporate Debtor, namely Suresh Kumar and Rajesh Kumar, who are Appellant in these Appeals. viii. The claim of the Appellants were admitted on basis of Recovery Certificate RC No. 40/2020 issued upon them by the Debt Recovery Tribunal (DRT) Chandigarh in Original Application filed by Central Bank of India. ix. I.A. No. 294/2020 was filed by the Central Bank of India, praying for following reliefs: a. Documentary evidence to be provided by IRP/RP, based on which the claims of the Unsecured Financial Creditors were admitted and the CoC was constituted; and financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iolation of principle of natural justice. 5. Learned Counsel for the Central Bank of India, refuting the submission of the Counsel for the Appellant contends that Appellant who had given Personal Guarantee to the loan obtained by the Corporate Debtor from the Central Bank of India, have not paid any amount, even though Decree has been issued by the DRT, hence they cannot claim to become Financial Creditor of the Corporate Debtor. The claim filed by the Appellant as Financial Creditor was wholly unsustainable. It is submitted that the IRP has admitted the claim of the Central Bank of India and allocated 51.37% voting shares subsequently by admission of claim of the above Appellant on basis of Personal Guarantee, the vote shares of the Central Bank of India has been reduced to 26.86%, which is wholly illegal. IRP has allocated vote shares of 23.85% to each of the Appellants, which shows illegalities committed by the IRP and allotting vote shared to the Appellant. 6. Learned Counsel for the Parties have also relied on Judgments of this Tribunal and Supreme Court in support of their submission, which we shall refer to while considering the submissions in details. 7. The Appeal having b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment, which is as follows : 3. Definitions. In this Code, unless the context otherwise requires , (6) claim means (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured ; (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured ; 10. Expression debt has been defined in Section 3(11) which is as follows : 3. Definitions. In this Code, unless the context otherwise requires, (11) debt means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt; 11. Section 5(8) defines the Financial Debt in following manner: 5. Definitions. In this Code, unless the context otherwise requires, (8) financial debt means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes (a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, a Financial Debt will arise only when in respect to Guarantee as covered by Section 5(8)(i) any liability has arisen which is the Statutory Scheme of the IBC. The above can be explained by an illustration. A Corporate Debtor has been extended financial facility of an amount of ₹10 Crores by a Bank. To secure the Financial Debt Guarantees have been given by 4 Personal Guarantors of the said amount against 1 Personal Guarantor, Bank had been able to realise an amount of ₹25 Lakhs but against 3 other Personal Guarantors, no amount has been realized. CIRP commenced against the Corporate Debtor, the Bank who has extended ₹10 Crores financial facility filed the claim. All the 4 Personal Guarantors, including one against whom the amounts have been realised filed claim in the CIRP of the Corporate Debtor. In event, the interpretation which is put by the Appellant is accepted all 4 Personal Guarantors shall be treated as Financial Creditor and the claim of all Personal Guarantors need to be accepted. Hence, Personal Guarantors claim which obviously will be ₹10 Crore each is accepted the Bank s voting share shall be reduced to only 20% and 3 Guarantors shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation to the principal debtor. In Para 7 while considering Section 140 of the Indian Contract Act following was held: In this connection it is necessary to consider the provisions of Section 140 of the Indian Contract Act, 1872 which states: Where a guaranteed debt has become due, or default of the principal debtor to perform a guaranteed duty has taken place, the surety, upon payment or performance of all that he is liable for, is invested with all the rights which the creditor had against the principal debtor(s). This section embodies the general rule of equity expounded by Sir Samuel Romilly as counsel and accepted by the Court of Chancery in Cravthorne v. Swinburne, namely: The surety will be entitled to every remedy which the creditor has against the principal debtor; to enforce every security and all means of payment; to stand in the place of the creditor; not only through the medium of contract, but even by means of securities entered into without the knowledge of the surety; having a right to have those securities transferred to him, though there was no stipulation for that; and to avail himself of all those securities against the debtor. This right of a surety also stands, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom disposing of his personal properties till the disposal of the Suit. Trial Court rejected the Petition for temporary injunction holding that Defendant No. 4 had no right to claim injunction as prayed. In the above context while affirming the rejection of temporary injunction following observations was made in Paragraph 18: 18. The mortgaged immovable properties wherever they do go either by transfer or assignment or by virtue of any partition, would remain always as the first charge for satisfaction of the decretal amount. It could not be prima facie shown before us that the mortgaged properties with such a considerable quantity of land even in the share of defendant No. 3 and the hypothecated movables taken together would not be sufficient to satisfy the dues of the decree if any. Such being the position, even if the defendant No. 4 may have the right to claim for temporary injunction by invoking the equitable doctrine of subrogation, the facts and circumstances of the present case as already discussed do not make out any prima facie case and do not indicate any balance of inconvenience or the chance of irreparable injury in favour of the defendant No. 4 to get the temporary in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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