2026 (2) TMI 539 - AT - IBC

Extinguishment of security interests under approved resolution plans prevents dissenting creditors enforcing pre-existing attachments; appeal allowed.

An approved resolution plan extinguishes the corporate debtor's debt and binds creditors, preventing dissenting financial creditors from enforcing or ... Extinguishment and release of encumbrances, security interests and attachments by an approved resolution plan - binding effect of an approved resolution plan under the Insolvency and Bankruptcy Code - extinguishment of claims, rights and litigation against erstwhile promoters, directors and guarantors pursuant to plan clause C-13(7) - inability of dissenting financial creditors to continue enforcement or recovery once debt is resolved under an approved plan - irrelevance of pre-existing statutory attachments, including under the Maharashtra Cooperative Societies Act, where the approved plan extinguishes the underlying debt - HELD THAT:- Section 101 is the provision of recovery of certain sums and arrears due to certain societies as arrears of land revenue. When the enforcement action has been initiated by respondent Nos. 1 & 2 for recovery and any asset has been attached the said attachment is only with recovery of dues of the respondents No. 1 & 2 consequent to the financial credit extended to the corporate debtor. When entire debt of respondents No. 1 & 2 has been resolved by approval of the resolution plan in the CIRP of the corporate debtor, it is not open for respondents No. 1 & 2 to submit that it will keep the assets attached under Section 101 of the Maharashtra Cooperative Societies Act, 1960, for recovering its dues. When resolution plan is approved and all debt of the respondents No. 1 & 2 which was filed as a claim in CIRP has been resolved and dealt with in the plan, the submission on behalf of the respondents No. 1 & 2 that is has still some amount due to be recovered is fallacious and contrary of the scheme of the IBC. We thus do not find any substance in the submission of learned counsel appearing on behalf of respondents No. 1 & 2 that respondents No. 1 & 2 can keep third-party securities and securities of personal guarantors and promoters which were not covered by any mortgage and which were under attachment to recover the dues of respondent Nos. 1 & 2. It is relevant to notice that the respondents No. 1 & 2 who are dissenting financial creditor has been in very beginning after approval of the resolution plan has been objected for extinguishing of their securities against the personal guarantors and promoters which objections were overruled and did not find favour and the issues have already been finalized between the parties vide judgment of this Tribunal dated 24.11.2023 in Comp. App. (AT) (Ins.) No. 661-663/2023 which order has been affirmed by the Hon’ble Supreme Court. It is not open for the respondents No. 1 & 2 to raise the same submissions again and again to contend that it is entitled to retain third-parties securities and assets of the promoters to recover its dues. The action of respondents No. 1 & 2 is clearly contrary to the whole IBC proceedings and need to be deprecated. It is not open for the adjudicating authority to observe that personal properties of the guarantors which were attached under Maharashtra Cooperative Societies Act, 1960, pursuant to award has to be kept out. The enforcement action under Maharashtra Cooperative Societies Act, 1960 by the respondents No. 1 & 2 to recover its dues and attachment pursuant thereof shall stand released by virtue of Clause C-13(7) and it is not open for the respondents No. 1 & 2 to continue their recovery enforcement action relying on the attachments made. The respondents No. 1 & 2 cannot rely on any attachment prior to in the CIRP process and claimed that those attachments shall continue to entitle it to recovery its dues. When one of the prayers in the application was to restrain the respondents No. 1 & 2 from taking any steps of recovery or enforcement for the debt which was due and payable by corporate debtor and prayed for direction to respondents No. 1 & 2 to act in any manner in contravention of the resolution plan, the respondents are clearly bound by order passed by the adjudicating authority. We may also notice that one of the prayers made in I.A. i.e., prayer (a) was to refer the matter to IBBI for filing a complaint against respondents No. 1 & 2 under Section 236 of the Code for offence under Section 74(3) of the Code. We allow the appeal. Issues: Whether the observations in paragraphs 55-57 of the impugned NCLT order, which restrict the scope of extinguishment under the approved resolution plan to only those assets specifically mortgaged in favour of the lenders and exclude assets attached under Section 101 of the Maharashtra Cooperative Societies Act, 1960, are sustainable; and whether attachments/enforcement actions by dissenting financial creditors in respect of personal guarantors and third-party assets survive the approval of the resolution plan.Analysis: The approved resolution plan contains express clauses (notably C-13(2), C-13(3) and C-13(7)) providing for irrevocable release and extinguishment in perpetuity of claims, encumbrances, security interests, liens and attachments over assets of erstwhile promoters, directors and guarantors, and for settlement/assignment of secured creditors' claims. The plan was approved by the Committee of Creditors with requisite votes, this Tribunal upheld that the plan validly dealt with securities and personal guarantees, and the Supreme Court dismissed the challenge. Where the resolution plan settles the creditors' claims and provides for release of encumbrances, enforcement actions and attachments maintained by dissenting financial creditors to recover amounts included in the CIRP claims cannot be continued; attachments under Section 101 of the Maharashtra Cooperative Societies Act, 1960 effected for recovery of such dues are covered by the plan's extinguishment and release provisions. The adjudicating authority's observations limiting release only to assets specifically mortgaged and excluding attachments pursuant to Section 101 are inconsistent with the wide language of the approved plan and the final judicial approvals thereof.Conclusion: The observations in paragraphs 55-57 are unsustainable and are set aside; attachments and enforcement actions by the dissenting financial creditors in respect of assets and guarantees covered by the approved resolution plan are released and extinguished in accordance with the plan and its approval.