Under A Security Trustee Agreement, An Individual Lender Cannot Invoke Personal Guarantee Without Taking Consent Of Other Co-Lenders: NCLT Delhi

Background Facts

Jaypee Infratech Ltd. ("Corporate Debtor") had availed four loans from IDBI Bank Ltd. ("Financial Creditor") aggregating to Rs. 4650,00,00,000/- and had executed a Common Loan Agreement and Facility Agreement on 30.04.2015 and a First Amendment Agreement (to Common Loan Agreement) dated 22.05.2015. Thereafter, an amount of Rs. 900,00,00,000/- was down sold by the Financial Creditor to India Infrastructure Finance Company due to which the principal amount of loan granted to the Corporate Debtor came down to Rs. 3750,00,00,000/-.

A Security Trustee Agreement dated 30.04.2015 was executed between the Financial Creditor and the Corporate Debtor. IDBI Trusteeship Service Ltd. was appointed to act as a Trustee on behalf of the Financial Creditor and the other lenders; and also to hold the security to be created pursuant to Financing Documents.

Mr. Manoj Gaur had executed a Deed of Guarantee dated 25.05.2015 in respect of the aforementioned loan facilities, wherein in the capacity of a Personal Guarantor he had irrevocably and unconditionally guaranteed repayment of the said loan facilities.

The Corporate Debtor defaulted in repayment of dues to the Financial Creditor and consequently, the Corporate Debtor's loan account was declared Non Performing Asset (NPA) on 31.03.2016. The Financial Creditor filed a petition under Section 7 of IBC seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against the Corporate Debtor. The NCLT Allahabad (Adjudicating Authority) had initiated CIRP against the Corporate Debtor vide an order dated 09.08.2017.

The Financial Creditor issued a demand notice dated 09.07.2018 to Mr. Manoj Gaur ("Personal Guarantor"), seeking repayment of the amounts in terms of Deed of Personal Guarantee. Thereafter, two demand notices dated 12.11.2021 and 09.12.2021 were issued by the Financial Creditor in Form-B under Rule 7(1) of the Rules of 2019 to the Corporate Debtor but the latter failed to pay the dues within the statutory period of 14 days from the service of the said Notice.

Following which, the Financial Creditor (through the Resolution Professional) filed an application under Section 95 of IBC against the Personal Guarantor on 14.01.2022. The Financial Creditor had also filed an application bearing IA No.782/2022 under Section 60(5) of IBC, seeking modification of order passed by the Adjudicating Authority on 08.02.2022, and appointment of Resolution Professional (RP) alongwith direction to RP to submit a report under Section 99 of IBC, 2016.

Contentions Of The Personal Guarantor

The Personal Guarantor challenged the application on grounds of maintainability, stating that the Financial Creditor has no locus standi to file the Application under Section 95, as it is a stranger to the contract (Deed of Guarantee). It was further argued that the Financial Creditor had concealed the fact that the Security Trustee had already filed a similar application under Section 95 of IBC bearing (IB)-83(PB)/2022 titled IDBI Trusteeship Services Ltd. Vs. Manoj Gaur in which the Adjudicating Authority had already issued notice. Further, the Personal Guarantor apprised the Bench that in the proceedings before NCLT Allahabad under Section 7 of IBC, the financial institutions that extended loans to the Corporate Debtor were:

1. IDBI Bank Limited
2. Union Bank of India
3. India Infrastructure Finance Company Limited
4. Life Insurance Corporate of India
5. State Bank of India
6. Canara Bank
7. Bank of Maharashtra
8. ICICI Bank Limited
9. IFCI Limited
10. The Jammu & Kashmir Bank Limited

However, in the demand notice dated 09.07.2018 issued by IDBI Trusteeship Services Ltd., the names of only 4 lenders were included, i.e. IDBI Bank Limited, Union Bank of India, Syndicate Bank of India and Bank of Maharashtra. Further, the version of the Security Trustee Agreement which includes the names of all the Lenders of the Corporate Debtor has not been placed on the record by the Financial Creditor. Instead, the version which contains only the names of from IDBI, State Bank of Hyderabad and India Infrastructure Finance Company Limited has been placed on record.

The Personal Guarantor also relied on certain clauses of the Security Trustee Agreement, which mandated that the enforcement of Security requires unanimous written instructions from all the co-lenders. On this basis, the Personal Guarantor argued that the all the Lenders have to act together through the Security Trustee, but no other bank has filed the application under Section 95. The Security Trustee Agreement states that a single lender cannot act alone. A similar reply was filed in IA No.782/2022.

Observations By The Special Bench

The Bench observed that a Trustee is appointed to hold the Trust property for the benefit of the beneficiaries of the Trust, who have a beneficial interest in the Trust property. In cases where there are multiple beneficiaries, the Trustee is bound to execute the trust for the benefit of all the beneficiaries, in accordance with the Trust Deed and only after taking consent of other co-lenders. It was further observed that such a clause was apparently incorporated with intent to safeguard the guarantor from being harassed at the hands of unscrupulous individual lender. The Bench upheld that as per the Security Trustee Agreement the consent of all co-lenders was required, in the absence of which an application under Section 95 of IBC cannot suffice.

Decision Of The Bench

The Bench held that the application under Section 95 is not maintainable and dismissed the same.

Case title: IDBI Bank Ltd. v Manoj Gaur (Personal Guarantor of Corporate Debtor Jaypee Infratech Ltd.), IB-29(PB)/2022.

Counsel for Applicant: Ankur Mittal, Meera Murli, Aishwarya, Advocates.

Counsel for Respondent: Krishnan Venugopal (Sr. Adv.), Vishal Gupta, Dheeresh Dwivedi, Gaurav Ray, Palalvi Srivastava Rajesh, Advocates.

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