2024 (3) TMI 1317 - AT - Insolvency and Bankruptcy

Personal guarantors cannot claim subrogation rights against corporate debtor after resolution plan approval under IBC

Mr. Vikas Aggarwal, Mrs. Sapna Aggarwal, Mrs. Archana Aggarwal, Smt. Kamlesh Devo Aggarwal Versus Asian Colour Coated Ispat Limited, JSW Steel Coated Products Limited, Committee of Creditors of Asian Colour Coated Ispat Limited, Mr. Kuldeep Kumar Bassi

Mr. Vikas Aggarwal, Mrs. Sapna Aggarwal, Mrs. Archana Aggarwal, Smt. Kamlesh Devo Aggarwal Versus Asian Colour Coated Ispat Limited, JSW Steel Coated ... Issues Involved:1. Validity of the Resolution Plan.2. Rights of Financial Creditors against Personal Guarantors.3. Applicability of the Indian Contract Act, 1872, and Transfer of Property Act, 1882.4. Commercial Wisdom of Committee of Creditors (CoC).Summary:1. Validity of the Resolution Plan:The Appellants challenged the Impugned Order dated 26.10.2020 approving the Resolution Plan, arguing that the inclusion of 'Excluded Rights' allowing Financial Creditors to pursue Personal Guarantors was illegal. The Tribunal noted that the Resolution Plan was approved with 79.3% voting by the CoC and the debt was assigned to the SPV, Hasaud Steels Limited. The Tribunal found that the Plan's approval was within the ambit of the Insolvency & Bankruptcy Code, 2016 (IBC) and did not contravene any provisions of the law.2. Rights of Financial Creditors against Personal Guarantors:The Appellants argued that once the debt was assigned to the SPV, Financial Creditors could not retain rights to pursue Personal Guarantors. The Tribunal held that Financial Creditors have the right to proceed against Personal Guarantors under the 'Excluded Rights' clause in the Resolution Plan. The Tribunal emphasized that the IBC allows for the continuation of personal guarantees and that such provisions do not need confirmation from Personal Guarantors.3. Applicability of the Indian Contract Act, 1872, and Transfer of Property Act, 1882:The Appellants contended that the approval of the Resolution Plan violated Sections 140 and 141 of the Indian Contract Act, 1872, and Section 6(e) of the Transfer of Property Act, 1882. The Tribunal clarified that the right of subrogation does not survive under the IBC, and the Code takes precedence over other laws due to Section 238. The Tribunal also found that the 'Excluded Rights' do not constitute a 'mere right to sue,' which is non-transferable under Section 6(e) of the Transfer of Property Act, 1882.4. Commercial Wisdom of Committee of Creditors (CoC):The Respondent No. 2 and CoC argued that the Resolution Plan was approved based on commercial wisdom, which is paramount and non-justiciable. The Tribunal reiterated that the commercial decisions of the CoC, including the retention of 'Excluded Rights,' are beyond judicial review as long as they comply with the IBC. The Tribunal cited the Supreme Court's judgments in K. Shashidhar Vs. Indian Overseas Bank and other cases to support this position.Findings:The Tribunal concluded that the Resolution Plan's approval was legal and valid, and the Financial Creditors retained the right to pursue Personal Guarantors. The Tribunal dismissed the appeals, emphasizing that the IBC's objective is the revival of the Corporate Debtor and that Personal Guarantors cannot escape their liabilities. The Tribunal upheld the commercial wisdom of the CoC and found no error in the Impugned Order. The appeals were rejected with no costs.