2022 (11) TMI 952 - AT - Insolvency and Bankruptcy

Appeal dismissed, guarantors remain liable post Resolution Plan acceptance. Creditor's choice to proceed.

The court dismissed the appeal, affirming the Adjudicating Authority's order. It held that the guarantors' liability was not discharged by the acceptance ... Admission of claims by Liquidator - Validity of decision of the Liquidator of the Corporate Debtor admitting the claim of the Respondent Nos. 2 to 6 (Consortium of Banks) for Rs. 399.1 crores - loan taken by related entity of the Corporate Debtor - Whether the Appellants are deemed to have discharged their liability as a guarantor, on approval of claim of Respondent Nos. 2 to 6 in CIRP proceeding of PMPL? - HELD THAT:- The acceptance of Resolution Plan is such permitting the creditor i.e., Consortium of Banks, Respondent Nos. 2 to 6 to proceed against the sureties to recover un-discharged loan amount by the principal debtor. When there is a contract to the contrary, the Respondent Nos. 2 to 6 are entitled to proceed against the Guarantors since the clause specifically excluded the Guarantor provided by the Financial Creditor in terms of clause 2.9.5. In subsequent clause 2.9.6, the rights of the Financial Creditor are reserved. Therefore, the alleged discharge of principal debtor would not absolve the Guarantors from their liability to discharge the debt due to the Creditors i.e., Respondent Nos. 2 to 6. The IBC legislation is subsequent to the Indian Contract Act and as such it will prevail over the provision of Indian Contract Act. In view of the principle laid down in State Bank of India vs. V. Ramakrishnan [2018 (8) TMI 837 - SUPREME COURT] and Lalit Kr. Jain vs. Union of India [2021 (5) TMI 743 - SUPREME COURT], the Guarantors are not absolved from their liability since Consortium of Banks, i.e., Respondent Nos. 2 to 6 reserved their right in the Resolution Plan to proceed against the Guarantors for recovery of the balance amount of loan. The finding of the Adjudicating Authority is hereby affirmed by holding the point against the Appellants and in favour of the Respondents. Whether Respondent Nos. 2 to 6 are entitled to proceed against the guarantor i.e., Hari Machine Ltd. without proceeding against other guarantors, if not, whether the admission of claim of the Respondent No. 2 to 6 by Respondent No. 1 in the liquidation proceeding is liable to be set aside? - HELD THAT:- It is for the Creditors to decide the mode of recovery by proceeding either against one or other or all Guarantors of this choice. At best, the Appellants may recover the amount, if any, paid in excess of their share under the Agreement of Guarantee in absence of contract to the contrary, any such Creditor may proceed against other Guarantor for recovery of amount, if any, paid in excess of their share. Therefore, the contention that the Respondent Nos. 2 to 6 Consortium of Banks cannot proceed against the Appellants is not based on any law. Respondent Nos. 2 to 6 are not getting any double benefit on the other hand they are loosing part of the claim even after admission of claim in the liquidation process of Hari Machines Ltd, thereby the reduction in the claim of the Petitioner/Appellant on account of admission of the claim of the Respondents is not sufficient ground to reject the claim of Respondent Nos. 2 to 6 - there are no error in the order passed by the Adjudicating Authority, warranting interference by this Tribunal while exercising the power under Section 61 of IBC since the order is free any illegality. The Adjudicating Authority recorded its findings based on the material. Hence the finding of the Adjudicating Authority is hereby affirmed - appeal dismissed. Issues Involved:1. Whether the appellants are deemed to have discharged their liability as guarantors upon the approval of the claim of Respondent Nos. 2 to 6 in the CIRP proceeding of PMPL.2. Whether Respondent Nos. 2 to 6 are entitled to proceed against the guarantor, Hari Machine Ltd., without proceeding against other guarantors.3. Validity of the acceptance of the Consortium of Banks' claim by the Liquidator.4. Allegations of fraud and the legality of the Guarantee Agreement.Detailed Analysis:Issue 1: Discharge of Liability as GuarantorsThe appellants contended that the liability of the guarantors ceased to exist once the Resolution Plan was accepted by the Committee of Creditors (CoC) and approved by the Adjudicating Authority. They argued that the acceptance of the Resolution Plan for Rs. 37,02,26,590/- discharged the guarantors. However, the judgment referenced Sections 133, 134, 135, and 136 of the Indian Contract Act, emphasizing that the liability of the guarantors is not discharged by the acceptance of the Resolution Plan. The court cited the judgment in 'State Bank of India vs. V. Ramakrishnan' and 'Lalit Kr. Jain vs. Union of India,' which clarified that the approval of a Resolution Plan does not discharge a guarantor's liabilities. The court held that the rights of creditors under the Contract of Guarantee are not extinguished by the Resolution Plan, and the guarantors remain liable.Issue 2: Proceeding Against One GuarantorThe appellants argued that the Consortium of Banks should have proceeded against all guarantors equally as per Section 146 of the Indian Contract Act. However, the court held that it is the prerogative of the creditor to proceed against any or all guarantors. The court cited several judgments, including 'Ram Kishun & Ors v. State of U.P. and others,' which affirmed that the creditor can choose to proceed against one or more guarantors without being directed by the guarantors. The court concluded that the creditor's right to recover from any of the guarantors is valid, and the appellants' contention lacks merit.Issue 3: Acceptance of Consortium of Banks' Claim by the LiquidatorThe appellants challenged the Liquidator's acceptance of the Consortium of Banks' claim, arguing that it violated Section 146 of the Indian Contract Act and reduced their share. The court noted that the Liquidator is bound to verify and admit claims as per Sections 38 and 39 of the IBC. The court found that the Liquidator followed due process in admitting the claim of the Consortium of Banks and that the appellants did not file an appeal under Section 42 of the IBC against the Liquidator's decision. The court held that the Liquidator's decision was in accordance with the law and affirmed the Adjudicating Authority's order.Issue 4: Allegations of Fraud and Validity of Guarantee AgreementThe appellants alleged that the Guarantee Agreements were obtained fraudulently and that the agreements did not contain the signature of an authorized person of PMPL. The court found no factual basis for the fraud allegations and noted that the appellants admitted to the execution of the Guarantee Agreements. The court held that the appellants could not approbate and reprobate by admitting the agreements and later alleging fraud. The court affirmed the Adjudicating Authority's finding that there was no fraud in obtaining the Guarantee Agreements.Conclusion:The court dismissed the appeal, affirming the Adjudicating Authority's order and holding that the appellants' contentions lacked merit. The court concluded that the appellants remain liable as guarantors, the Liquidator's acceptance of the Consortium of Banks' claim was lawful, and there was no fraud in obtaining the Guarantee Agreements.