9911796707
TMI Blog2014 (2) TMI 1440X X X X Extracts X X X X X X X X Extracts X X X X ..... licant made payment of a certain sum in full and final settlement of the dues of the applicant to the respondent. The respondent accepted that amount. It is of importance to note that the scheme was in respect of precisely the liability of the applicant towards the respondent itself. 3. The applicant was the principal debtor. The respondent was the creditor. The applicant's debt was guaranteed by the confirming party. 4. The initial application under Section 391 - 394 of the Companies Act, 1956 (the Act) was for sanctioning a scheme for repayment of the debt of the applicant by way of a scheme of compromise and arrangement. 5. Section 391 grants powers to the Company Court/Tribunal to order a meeting of creditors or members for sanctioning any scheme of compromise or arrangement as per the procedure laid down therein. Under the scheme the respondent agreed to settle the dues of the applicant for a lesser amount. The applicant paid what was agreed to be the amount in full and final settlement of its dues. These dues were payable to the respondent as its creditor. It would have to be seen whether the guarantor/surety of the applicant would stand discharged of the remainder of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a lessor amount. All the parties to the contract accepted such a scheme which represents a contract between them. The debtor and the creditor acted upon such a contract. The debtor made payment of the agreed amount. The creditor accepted the payment. The debtor would ipso facto stand discharged and released of any further liability. Hence the principal debtor demanded a No Dues Certificate and to record the satisfaction of the charge created under the Companies Act, as also a Release Deed as agreed between the parties in the said scheme. The debt was owed to bank/financial institution. Proceedings under the Debt Relief Act before the DRT were earlier initiated by the creditor. These would require to be withdrawn. Hence the principal debtor required directions for withdrawal of the claims before the Releasing Officer, DRT filed by the respondent/secured creditor. 9. Since the agreed dues were paid in full and final settlement, the secured creditor agreed to issue No Dues Certificate, executed a Release Deed and withdrew the proceedings before the DRAT where they were then pending and the parties agreed that the respondent / secured creditor may proceed against the guarantor/sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset in the books of a majority of those lenders. It had poor financial performance. It had more than 1000 employees and 1 lac share-holders. The guarantor company was in the business of ship building and ship repairing having the largest private ship building in the country and specialized in the construction of defence vessels. It had evinced interest to rehabilitate the applicant. It had to make certain cash infusion into the applicant and acquire the shares of the applicant pursuant to the scheme. It would provide a loan of Rs. 25 crores to the applicant for its urgent business requirement and to provide technical and marketing expertise as provided in an agreement between the two companies contemporaneously followed. The scheme provided inter alia for compromise with the secured lenders/secured creditors in respect of the secured liabilities of the applicant. It provided for two options either of which could be exercised by the secured lenders/secured creditors. One was for exercising their option to convert the secured liabilities into equity shares, another specified portion into convertible zero coupon loan and the remainder into term loan at a specified rate of interest. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the case of release or discharge of the principal debtor simplicitor). (d) If a creditor makes a composition with the principal debtor without the consent of the guarantor the guarantor would stand discharged. With the consent of the guarantor, therefore, he would not stand discharged. (A variance of the contract, or the composition with the principal debtor would, therefore, be on a similar footing. If the variance or the composition is made with the consent of the guarantor the guarantor is not discharged. A release of the principal debtor simpliciter would discharge the guarantor). 18. In this case there has been a variance of the contract of the loans/assistances/facilities granted by the secured creditors / secured lenders. It is with the guarantor's consent. The guarantor was a confirming party to the scheme. The guarantor is, therefore, not released of its obligations as a guarantor under the initial contract, the execution of the scheme notwithstanding. By the execution of the scheme the principal creditors would not proceed in execution of the recovery proceedings already initiated by them by following due legal process, if principal debtors paid off the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bilitating the applicant company. The scheme constitutes a tripartite agreement with the applicant company, the secured creditors and the confirming party. The consideration under the scheme which is a contract between these parties flows to the guarantor. The contract is not without consideration. The consideration is as per Section 2(d) of the Act, which runs thus: "2. Interpretation-clause. - In this Act the following words and expressions are used in the following senses, unless a contrary intention appears from the context: (a) ..... (b) ..... (c ) ... (d) When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise;". 23. In this case at the desire of the the applicant as the promisor, the secured creditor/respondent as the promisee has abstained from enforcing its liability to the extent of 58% of the dues and in return for which no consideration has flowed. The guarantor as "any other person" instead upon evincing interest for a proposal to rehabilitate th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 Ch. App. 211 where the acceptor of a bill of exchange who was the principal debtor applied under the Bankruptcy Act and was held discharged by operation of law, the drawer who was the guarantor under the contract upon the bill of exchange was held not discharged from his liability whether or not he voted for or against the resolution relating to Bankruptcy Act. It is observed in paragraph 3 of the judgment thus: "The drawer in the particular case stood in the position of a surety under the Negotiable Instruments Act. This decision shows that as a result of bankruptcy the debt due by the principal debtor may become unenforceable against the debtor, but the liability of the surety is not thereby discharged. In the case of a limited company in In re London Chartered Bank of Australia (1893) 3 Ch. 540 it was held to the same effect. It was there pointed out that it was unnecessary to insert the scheme of reconstruction a reservation of the rights of sureties for the company's debts, when an order for winding-up had been made, because the scheme did not affect the liability of the sureties". 28. In the case of Re: London Chartered Bank of Australia [1893] 3Ch. 540 the liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was observed that a scheme of arrangement which has statutory operation does not release other persons as the parties to the scheme from their obligations. 31. In the case of Maharashtra State Electricity Board, Bombay Vs. Official Liquidator, High Court, Ernakulam [1982] 3 SCC 358 / [1983] 1 SCR 561 which is also shown to Court, an unconditional bank guarantee was given by a company in liquidation to the electricity board. The bank had to make payment of the specified amount remaining due under the bank guarantee on demand from the electricity board. The guarantee was extended. The company was called upon to pay. The company was ordered to be wound up. The bank, instead of making payment, called upon the Official Liquidator to do so. The Official Liquidator filed an application under Section 456(2) of the Companies Act, 1956 r.w. Rule 9 of the Companies (Court) Rules 1959 restraining the electricity board from recovering the amount under the guarantee. A scheme of reconstruction of the company was proposed. It was held that liquidation proceedings did not effect the electricity board from claiming under the bank guarantee because the bank as a guarantor under the contract of gu ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
