2024 (8) TMI 1109 - AT - Insolvency and Bankruptcy

Personal guarantor remains liable after loan assignment to ARC despite challenging Section 95 petition admission

Mr. Paresh Parekh Versus Alchemist Asset Reconstruction Co. Ltd., Mr. B.L. Chakravarti Resolution Professional of the Appellant And Mr. Manish Patel Versus Alchemist Asset Reconstruction Co. Ltd., Mr. B.L. Chakravarti Resolution Professional of the Appellant

Mr. Paresh Parekh Versus Alchemist Asset Reconstruction Co. Ltd., Mr. B.L. Chakravarti Resolution Professional of the Appellant And Mr. Manish Patel ... Issues Involved:1. Denial of natural justice to the Appellant.2. Invocation of Deed of Guarantee circumscribed by the Put Option Agreement.3. Appellant's right to object to the Assignment Agreement between RBL and Respondent No.1.Issue-wise Detailed Analysis:1. Denial of Natural Justice to the Appellant:The Appellant contended that the Adjudicating Authority did not provide sufficient opportunity to present its defense due to technical glitches during the virtual hearing. The Adjudicating Authority reserved the matter for orders and directed the Appellant to file written submissions on the same day. The Appellant argued that this curtailment of their right to be heard violated the principles of natural justice. However, the Tribunal noted that the Adjudicating Authority had observed the matter was old and the RP's report had been filed long back. Given the stringent timelines under the IBC, the Tribunal found no infirmity in the Adjudicating Authority's decision to expedite the disposal of the Section 95 application. The Tribunal concluded that there was no violation of natural justice and remanding the matter would frustrate the IBC timelines. The Tribunal provided the Appellant sufficient opportunity to present their case before it.2. Invocation of Deed of Guarantee Circumscribed by the Put Option Agreement:The Appellant argued that the Financial Creditor was obligated to first exercise rights under the Put Option Agreement before invoking the Deed of Guarantee. The Tribunal examined the Term Loan Agreement, Assignment Agreement, Deed of Guarantee, and Put Option Agreement. The Deed of Guarantee was found to be an independent contract with unconditional and irrevocable terms. The Tribunal held that the invocation of the guarantee was not contingent on the exercise of the Put Option Agreement. The Adjudicating Authority correctly held that the Respondent No.1's right to recover money from the PG emanated from the Deed of Guarantee, which was not superseded by the Put Option Agreement. The liability of the PG was dependent on the Deed of Guarantee, which was independent of the Put Option Agreement.3. Appellant's Right to Object to the Assignment Agreement:The Appellant contended that the Assignment Agreement between RBL and Respondent No.1 was executed with malafide intentions and without their consent, thus inapplicable to them. The Tribunal examined the Assignment Agreement and relevant clauses of the SARFAESI Act, 2002. The Tribunal found that the Assignment Agreement was valid under Section 5 of the SARFAESI Act, which empowered an Asset Reconstruction Company to acquire financial assets. Once the Assignment Deed was executed, Respondent No.1 stepped into the shoes of the original lender and was entitled to initiate proceedings under Section 95 of the IBC. The Tribunal held that the borrower or guarantor had no locus to challenge the assignment, and the terms of the Deed of Guarantee, which allowed for assignment, were binding on the Appellant-PG. The Tribunal concluded that the Appellant's objection to the Assignment Agreement was unfounded.Additional Issues Raised by the Appellant:The Appellant raised issues regarding incomplete and morphed bank statements, defective Form C, and payments made by Agnus to RBL. The Tribunal noted that the RP had examined various documents and provided the Appellant an opportunity to prove repayment of debt. The RP's report, which recommended admitting the Section 95 application, was found to be thorough and without infirmity. The Adjudicating Authority had also considered the limitation aspect and found the application to be within the period of limitation. The Tribunal dismissed the Appellant's allegations of fraud and defective Form C, stating that allegations of fraud need to be substantiated with strong evidence, which was not done in this case.Conclusion:The Tribunal upheld the Adjudicating Authority's order admitting the Section 95 applications and initiating the Insolvency Process against the Personal Guarantors. The appeals were dismissed with no costs.