Extinguishment Of Promoters' Personal Guarantees In Resolution Plan Is Valid If Plan Complies With IBC Provisions: NCLT Mumbai
The NCLT Mumbai Bench of Justices Anil Raj Chellan (Technical Member) and Kuldip Kumar Kareer (Judicial Member) affirmed that the clause in the resolution plan for extinguishing the personal guarantees of promoters furnished in favour of all financial creditors or the commercial decision of the CoC to approve such release of personal guarantees, including guarantees executed in favour...
The NCLT Mumbai Bench of Justices Anil Raj Chellan (Technical Member) and Kuldip Kumar Kareer (Judicial Member) affirmed that the clause in the resolution plan for extinguishing the personal guarantees of promoters furnished in favour of all financial creditors or the commercial decision of the CoC to approve such release of personal guarantees, including guarantees executed in favour of dissenting financial creditors, will not contravene any provisions of the Code. Further, the dissatisfaction of a creditor in respect of payment under the Resolution Plan is of no consequence unless it violates any of the provisions of the Code.
Brief Facts
The present application is filed by the Applicant under Section 60(5) read with Sections 30 and 31 of the Insolvency and Bankruptcy Code, 2016 ('the Code'). On an application filed under Section 10 of the Code, Altair Industrial Technologies Private Limited ('the Corporate Debtor') was admitted to the Corporate Insolvency Resolution Process ('CIRP') vide order dated 26.02.2019 passed by this Tribunal.
The Applicant is a member of the Committee of Creditors (CoC) with an admitted claim of Rs. 3,14,01,973/- and has a voting share of 8.05%. Respondent No. 2 is the other member of the CoC with 91.95% of the voting share. The Applicant states that Respondent No.2 has agreed to consider the Resolution Plan submitted by the suspended director which is not compliant with the provisions of the Code and directed the RP/ Respondent No.1 to place the resolution plan for e-voting.
Accordingly, the Resolution Plan submitted by the suspended Director was voted upon and the voting would conclude on 25.10.2021.. The Applicant states that Respondent No.1 has failed to perform his duties as required under the Code with regard to ensuring that only IBC compliant resolution plans are to be placed before the CoC for its consideration.
Contentions
The Applicant submitted that the resolution plan submitted by the suspended Director proposes the extinguishment of liabilities under the personal guarantees which is bad in law and against the settled position.
- That IBBI (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2021 notified on 30.09.2021 restricted the number of submissions and revisions of a given resolution plan to not more than once w.e.f. 01.10.2021. However, Respondent No.1 has allowed the suspended Director to submit multiple revisions even after the effective date of the aforesaid amendment by accepting an unsolicited revised Resolution Plan dated 14.10.2021 and then again, the revised Resolution Plan dated 18.10.2021.
- That Respondent No.1 has failed in his duties in so far as it relates to filing the appropriate application before this Tribunal under Sections 43, 45 and 66 as applicable considering the fact that there are adverse findings in the transaction audit report against the conduct of the suspended Director.
Per contra, the Respondent no. 1/RP submitted that the Resolution Plan submitted for approval is in adherence to the provisions of the Code which can be seen from the compliance certificate in Form H filed as per Regulation 39 (4) of the CIRP Regulations and that the extinguishment of personal guarantee falls within the commercial wisdom of CoC and there is no provision in the Code which restricts such extinguishment.
- He has filed an application (IA. No. 124 of 2020) under the provisions of Section 66 of the Code and the same is still pending for adjudication. The pendency of such application does not bar the Resolution Applicant under Section 29A of the Code.
- That In the event of liquidation of the Corporate Debtor, the Applicant is not likely to get any amount as it holds only subservient charge over the movable and immovable assets of the Corporate Debtor.
The Respondent No. 2 submitted that the Resolution Plan was considered by the CoC as per the provisions of the Code. Since no other Resolution Plan was available and considering the fact that the CIRP was expiring on 27.10.2021 and the plan value was above the liquidation value, the resolution Plan was approved.
- That contentions raised by the Applicant are not sustainable under law. The provisions of the Resolution Plan including the release of the personal guarantor are in accordance with the Code and the resolution plan provides for payment in accordance with the security interest held by each person.
NCLT's Analysis
The tribunal, at the outset, referred to the NCLAT judgment in Family Welfare Trust & Anr v. Ujjas Energy Ltd & Ors (2023) wherein the commercial decision of CoC was upheld for extinguishing the personal guarantees of the financial creditors as part of the resolution plan. The appeal filed against the order before the Hon'ble Supreme Court was also dismissed vide its order dated 06.11.2023
The tribunal while applying the above ratio to the facts of the present case observed that the personal properties of the personal guarantors are also forming part of the security created in favour of the financial creditors. In the circumstances, there are justifiable reasons for the expectation of composite resolution of debt of the Corporate Debtor therefore the conscious decision of the CoC to extinguish the personal guarantees given to financial creditors including dissenting financial creditors does not contravene any of the provisions of the Code nor the same is justiciable.
The tribunal further rejected the contention with regard to revision of resolution plan and observed that there was no revision in the invitation for expression of interest, but this Tribunal vide its order dated 29.07.2021 permitted the Respondent No.1 to place the Resolution Plan before the CoC and also granted the extension of the CIRP period. The Applicant, after having participated in four subsequent meetings of the CoC without challenging the order dated 29.07.2021 before the Appellate forum, cannot now raise a valid objection that the same is not in accordance with the provisions of the Code.
The tribunal while rejecting the contention pertaining to discriminatory treatment between two similarly placed creditors observed that Respondent No.2 enjoys the first charge and mortgage on all the assets of the Corporate Debtor, the first charge on the personal assets of the promoters, and the personal guarantee of promoters. The voting share of Respondent No.2 is 91.95%. The Applicant, however, enjoys only residual/subservient charge on all movable assets of the Corporate Debtor and promoters' personal guarantee. The voting share of the Applicant is 8.05 %.
The tribunal further observed that as per the settled position of law, the subservient charge holder can recover/realize its dues only after the full satisfaction of the first charge. In the circumstances, although both Applicant and Respondent No.2 are secured financial creditors, by no stretch of the imagination can they be considered as equally placed with regard to the security interest.
The tribunal further referred to the Supreme Court judgment in India Resurgence ARC Pvt. Ltd vs. Amit Metaliks Ltd & Another (2021), wherein it was held that in the scheme of IBC, every dissatisfaction does not partake the character of a legal grievance and cannot be taken up as a ground of appeal.
Based on the above, the tribunal observed that In the circumstances, the dissatisfaction expressed by the Applicant with regard to the amount provided under the Resolution Plan cannot be a valid ground to reject a resolution plan which was approved by the CoC in its commercial wisdom by the requisite majority.
The tribunal further rejected the contention with respect to ineligibility to submit the plan and observed that the ineligibility for submission of the Resolution Plan would be determined by the date on which the Resolution Applicant submits his plan.
Based on the above, the tribunal observed that It is evident that there was no disqualification on the date of submission of the Resolution Plan therefore the disqualification, merely on the ground that avoidance application is pending,will not be attracted to Mr. Anoop Anand who is part of the Successful Resolution Applicant.
The tribunal concluded that the clause in the resolution plan for extinguishing the personal guarantees of promoters furnished in favour of all financial creditors or the commercial decision of the CoC to approve such release of personal guarantees, including guarantees executed in favour of dissenting financial creditors, will not contravene any provisions of the Code. Further, the dissatisfaction of a creditor in respect of payment under the Resolution Plan is of no consequence unless it violates any of the provisions of the Code.
Accordingly, the present I.A. was dismissed.
Case Title: Small Industrial Development Bank of India (SIDBI) V/s Harshad Deshpande and Anr.
Case Reference: IA No. 2573/2021 In CP (IB) 4367/MB/ of 2018
Judgment Date: 25/10/2024