TaxTMI 
TaxTMI 
2019 (3) TMI 193
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....lowing:- 3. The Financial Creditor has granted loan and various credit facilities to Visa Steel Ltd.( In short VSL) wherein the Corporate Debtor herein stood as a corporate guarantor. Facilities were granted which were subsequently and on various occasions, renewed from time to time. The Financial Creditor has restructured the debt in the year 2012. However the corporate debtor as a corporate guarantor failed to repay the principal amount along with interest to the Financial Creditor. Since the Corporate Debtor has not been paying the default amount to the Financial Creditor, therefore, this application has been filed by the Financial Creditor for initiating the Corporate Insolvency Resolution Process against the Corporate Debtor under section 7 of the Insolvency and Bankruptcy Code, 2016 (In Short I& B Code). 4. The VSL being defaulter in its repayment of outstanding dues, the Corporate Debtor, as per the Deed of Guarantee and Letter of Guarantee issued by the Corporate Debtor, is liable to repay the outstanding dues as shown in the applications. The Corporate Debtor being defaulter to the repayment, the Financial Creditor has filed this application praying for initiating Co....
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.... 440 to 476 15. Exhibit: O Security Trustee Agreement among Visa Steel Limited as the "Borrower" and other Banks mentioned in Schedule I as the "Lenders" and State Bank of India as the "Monitoring Institution" dated 19th December, 2012. 477 to 518 16. Exhibit: P Trust and Retention Account Agreement among Visa Steel Limited as the "Borrower" and State Bank of India as the "Monitoring Institution" and State Bank of India as Account Bank dated 19th December, 2012. 519 to 570 17. Exhibit: Q Additional Term Loan Agreement between Visa Steel Limited as the "Borrower" and the Banks (State Bank and 16 Ors.) as the "Lenders" dated 19th December, 2012. 571 to 605 18. Exhibit: R Joint Deed of Hypothecation between Visa Steel Limited as the "Borrower" and the Lenders (State Bank of India and 17 Ors.) dated 19th December, 2012. 606 to 628 19. Exhibit: S Inter Se Agreement among the Lenders (State Bank of India & 19 Ors.) and State Bank of India as the "Monitoring Institution" dated 19th December, 2012. 629 to 662 20. Exhibit: T Deed of Personal Guarantee by Sri Vishambhar Saran as the "Guarantor" in favour of the Lenders (S....
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....ia as the "Acceding Lender" dated 15th January, 2013. 791 to 793 36. Exhibit: JJ Schedule VI - Deed of Accession issued by Dena Bank as the "Acceding Lender" dated 22nd January, 2013. 794 to 796 37. Exhibit: KK Agreement for pledge of shares dated 15th June, 2013 executed between Visa International Limited and State Bank of India & 17 Ors. 797 to 805 38. Exhibit: LL Agreement for pledge of shares between Visa Infrastructure Limited as the "Pledgor" in favour of State Bank of India & 17 Ors. As "Security Trustee" dated 15th June, 2013. 806 to 816 39. Exhibit: MM Agreement for pledge of shares dated 15th July, 2013 executed between Visa Steel Limited and State Bank of India & 17 Ors. 817 to 826 40. Exhibit: NN Agreement to Mortgage dated 28th September, 2013 executed between Visa Steel Limited as the "Borrower" in favour of State Bank of India & 18 Ors. 827 to 839 41. Exhibit: OO Agreement for Pledge of Shares dated 18th March, 2014 executed between Visa Steel Limited and State Bank of India & 17 Ors. 840 to 849 42. Exhibit: PP Agreement for Pledge of Shares dated 24th March, 2014 executed between Vis....
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....al Consortium Agreement dated 30th January, 2015 between Visa Steel Limited as the "Borrower" and State Bank of India and 14 Ors. as the "Lenders". 984 to 1017 54. Exhibit: BBB First Supplemental Joint Deed of Hypothecation dated 30th January, 2015 between Visa Steel Limited as the "Borrower" and State Bank of India and 14 Ors. as the "Lenders". 1018 to 1037 55. Exhibit: CCC Sanction letter dated 28th March, 2015 issued by State Bank of India in favour of Visa Steel Limited for Sanction of Credit Facilities. 1038 to 1075 56. Exhibit: DDD Common Loan Agreement dated 28th March, 2015 among Visa Steel Limited as the "Borrower I and Co-obligor I" and Visa Special Steel Limited as the "Borrower-II and Co-obligor II" and State Bank of India as the monitoring institution and State Bank of India & 18 Ors. 1076 to 1173 57. Exhibit: EEE Guarantee Agreement dated 28th March, 2015 by Shri Vishambhar Saran as the "Guarantor" in favour of Lenders (State Bank of India & 18 Ors.). 1174 to 1190 58. Exhibit: FFF Guarantee Agreement dated 28th March, 2015 by Visa Infrastructure Limited as the "Guarantor" in favour of Lenders (State Bank of I....
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....d by Visa Infrastructure Limited to State Bank of India (Monitoring Institution). 1401 to 1405 74. Exhibit: VVV Letter of Undertaking dated 23rd March, 2013 issued to State Bank of India by Vishal Agarwal. 1406 to 1409 75. Exhibit: WWW Letter of Undertaking dated 23rd March, 2013 issued to State Bank of India by Visa International Limited. 1410 to 1413 76. Exhibit: XXX Letter of Undertaking dated 23rd March, 2013 issued to State Bank of India by Visa Infrastructure Limited. 1414 to 1417 77. Exhibit: YYY Letter of Undertaking dated 23rd March, 2013 issued to State Bank of India by the personal guarantor, Vishambhar Saran. 1418 to 1421 78. Exhibit: ZZZ Letter dated 15th June, 2013 issued by Visa International Limited to State Bank of India for pledge of certain dematerialized shares. 1422 to 1423 79. Exhibit: AAAA Letter dated 15th June, 2013 issued by Visa Infrastructure Limited to State Bank of India for pledge of certain dematerialized shares. 1424 to 1425 80. Exhibit: BBBB Letter dated 15th July, 2013 issued by Visa Steel Limited to State Bank of India for pledge of certain dematerialized shares. ....
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....on Professional is not independent. The Corporate Debtor is a company belonging to Visa Group of Company which inter alia also includes Visa Steel Limited. 9. The Visa Steel Limited has availed the credit facility from the various lenders including the applicant herein and other bankers and/or financial institutions as referred to in the application. In the meanwhile, the credit facilities availed by the Visa Steel Limited were referred to the Corporate Debt Restructuring Forum (In short, CDR Forum) for efficient restructuring of the Corporate Debtor. The CDR Cell considered the request of the Visa Steel Limited as above, restructuring the proposal, thereby the existing financial assistance was to be restructured and certain additional financial assistance was to be extended. It is on the strength of the restructuring proposal that the Corporate Debtor was required to furnish a conditional corporate guarantee with a negative lien on its property being a building known as "Visa House". The conditional guarantee executed by the Corporate Debtor would be valid till the principal borrower brought in additional equity of Rs. 125 Crores over and above Rs. 325 Crores in terms of the un....
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....n in full force and effect till infusion of additional equity of Rs. 125 Crores over and above Rs. 325 Crores in the Visa Steel Limited as enumerated in the Common Loan Agreement. As per the above loan term in the Common Loan Agreement, Guarantee Agreement and restructuring process, the conditional guarantee shall remain in full force and would be valid only till the happening of the events mentioned in Clause 24 of the Guarantee Agreement. The above said obligation created as per the Guarantee Agreement was reiterated further in the revival letter dated 29/10/2015. 13. The principal borrower as per the business re-organisation proposal filed the application before the National Company Law Tribunal, Kolkata Bench being C.P. No. 389 of 2017 and the Hon'ble Tribunal approved the Scheme of Amalgamation under Sections 391 to 394 of the Companies Act, 1956 thereby Visa Bao Limited was merged with the Visa Steel Limited, the principal borrower, vide order dated 12/10/2017. By reason of amalgamation, the assets and liabilities of Visa Bao Limited is taken over by the principal borrower and the assets valued for an amount of Rs. 575 Crores was infused in the principal borrower, thereby ....
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.... the Code but initiate proceedings with mala fide intention as against the guarantor even though there is no default on the side of the guarantor/Corporate Debtor. The Corporate Debtor is not at all liable to pay the debt as demanded by the Financial Creditor. The alleged debt has been discharged in the manner as already stated above. The purported confirmation of balance as contained in the letter dated 05/07/2017 has been made by the principal borrower and not the Corporate Debtor. Therefore, it is not binding on the Corporate Debtor. So, also CIBIL report has no consequence inasmuch as there is no debt due or payable by the Corporate Debtor to the applicant. Upon the said contentions, the Corporate Debtor prays for passing an order of dismissal with exemplary cost. 18. The Applicant/State Bank of India filed Rejoinder to the Affidavit in Opposition of the Corporate Debtor contending in brief is the following:- 19. The Applicant denied the contentions raised by the corporate debtor and stated that the application is very well maintainable and complete as per Section 7 of the I & B Code, and that there is admittedly a debt and existence of default on the part of the Corporat....
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....in any additional cash infusion and that the increase in the value of the assets is not because of infusion of additional equity but merely because of the revaluation of the assets of Visa Bao which is the result of book adjustment. It also states that the Corporate Debtor, in order to evade its liability and upon knowledge of default on its part, has filed Title Suit No. 6714/2017 on 21.12.2017, only to impede the present application which in turn shows the mala fide intentions of the Corporate Debtor. It denies that the Corporate Debtor is discharged from the debt, and as there is existence of debt and occurrence of default, it therefore submits that the application should be admitted. 22. Heard Ld. Counsel Mr. Aritra Basu on the side of the Financial Creditor and Ld. Counsel Mr. Sabyasachi Chaudhuri on the side of the Corporate Debtor. Perused the records and citations referred to on both sides. 23. Upon perusal of the records and upon hearing the argument advanced on the side of the Financial Creditor as well as on the side of the Corporate Debtor, the point that arises for determination are ;- (i) Whether the corporate debtor committed default in making the paym....
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....and is based on a Corporate Guarantee executed by the Corporate Debtor on the strength of a CDR package dated 27-02-2012. Admittedly, the Corporate Debtor has executed the Corporate Guarantee on the basis of the CDR Package (Annexure "B"). Admittedly, the Principal Borrower is the VSL. As per the restructuring Package, the lenders had restructured the existing financial assistance and granted additional financial assistance as per the terms and conditions set out in the CDR Package and the Master Restructuring Agreement dated 12-12-2012. The Master Restructuring Agreement dated 12-12-2012 is marked as Exhibit 'M' in the Application. 30. As per the Master Restructuring Agreement dated 12-12-2012, the Corporate Debtor has executed irrevocable and unconditional Corporate Guarantee of VISA Infrastructures Limited with negative lien on the immovable property known as "VISA House" situated at 8/10, Alipore Road, Kolkata - 700 027, till the Promoters of the Borrower bring in additional equity of Rs. 125 crores over and above the Promoters' contribution of Rs. 325 crores in the Borrower Company as envisaged in the CDR Package. 31. This is one among the clause in the Master Restructur....
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....reated as per the undertaking shall be valid till the infusion of additional funds of Rs. 125 crores over and above Rs. 325 crores as enumerated in the restructuring Package approved by CDR Empower Group. Accepting this Letter of Undertaking, the Master Restructuring Agreement has been executed by the VSL between the Lenders and SBI, the Applicant herein. Clause (i) in the Master Restructuring Agreement dated 19-12-2012 reiterated the very same clause of irrevocable, unconditional Corporate Guarantee admittedly executed by the Corporate Debtor. It is good to read Clause (i). It reads as follows : "Irrevocable, unconditional Corporate Guarantee of VISA Infrastructure Limited with negative lien on the immovable property known as VISA House situated at 8/10, Alipore Road, Kolkata - 700 027, till the Promoters of the Borrower bring in additional equity of Rs. 125 crores over and above the Promoters' contribution of Rs. 325 crores in the Borrower Company as envisaged in the CDR Package." 35. The Ld. Counsel for the Corporate Debtor submits that the Corporate Guarantee executed by the Corporate Debtor is conditional. According to him, the obligation on the side of the Corpora....
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....omoters bring in additional equity of Rs. 125 crores over and above Rs. 325 crores and if that is done, the Corporate Debtor is to be discharged from its liability. A reading of the entire clause referred to me in the Deed of Guarantee which is binding on the Corporate Debtor, it appears to me that the contention put forward on the side of the Corporate Debtor has some force. At this juncture, the Ld. Sr. Counsel appearing on the side of the Corporate Debtor referred to Clause 37 of the Deed of Guarantee which reads as follows : "Notwithstanding anything contained herein above, this Guarantee shall be valid and subsisting till the Promoters of the Borrower bring in additional equity of Rs. 125 crores over and above, the Promoters' contribution of Rs. 325 crores in the Borrower Company as envisaged in the CDR Package. " 39. When Clause 37 was stressed upon by the Corporate Debtor, the Ld. Counsel for the Applicant submits that Clause 37 has no overriding effect on clauses 19, 20 and 21 in the Deed of Guarantee highlighted on the side of the Applicant. As per clause 37 of the Guarantee Agreement, no doubt the Guarantee executed by the Corporate Debtor shall be valid and s....
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....e credit facilities with all interests or till infusion of additional equity of Rs. 125 crores over and above Rs. 325 crores in the Borrowers as enumerated under the Loan Agreement, the liability of the guarantor is to be discharged. According to Ld. Counsel appearing for the Corporate Debtor, the said condition in Clause 24 of the Guarantee Agreement has been fulfilled in the case in hand and therefore, the Corporate Guarantor is absolved from its liability and therefore, no action can be initiated against the Corporate Debtor in the case in hand. He reiterated that fulfilment of the above said terms envisaged in the CDR Package as well as in the Corporate Guarantee absolves the Guarantee given by the Corporate Debtor. It would not continue as submitted by the Ld. Counsel for the Applicant. 43. I find some force in the argument put forward on the side of the Corporate Debtor in the case in hand. To substantiate the said contention that of Clause 24 of the Guarantee Agreement dated 28-03-2015 has been complied with, the Ld. Counsel referred to the copy of the order of sanctioning the Scheme of Amalgamation between VISA Steel Limited and Visa Bao Limited in CP(CAA) No. 389/KB/201....
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....gainst the guarantor, the Corporate Debtor herein. It reads as follows :- "Visa Infrastructure Limited, Visa House, 8/10, Alipore Road, Kolkata (Corporate Guarantor). The company is requested to make payment of the amount mentioned in the notice in terms of the guarantee executed by the company immediately on receipt of this letter, failing which the Bank will be constrained to take legal recourse including initiation of Corporate Insolvency Resolution Process (CIRP under Insolvency & Bankruptcy Code, 2016 (IBC) Deputy General Manager" 47. So no doubt the Corporate Debtor was directed to repay the amount mentioned in the demand notice in terms of the Guarantee Agreement. So the liability, if any, to repay the amount from the Corporate Debtor is limited to the extent of liability stipulated as per the Deed of Guarantee. For avoiding repetition of facts, I am not repeating the clauses referred to in the Deed of Agreement. In detail, I have dealt with the terms to be fulfilled by the guarantor in case borrower failed in discharging its liabilities to the extent referred to in clause 32 of the Deed of Agreement. Truly the infusion of Rs. 125 Crores allegedly made b....
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....-merging some business divisions into separate Companies/SPV's through scheme/slump sale and inviting strategic investor." 49. The above referred reconfirmation of the liability acknowledged to the Applicant Bank reveals that as per the terms stipulated in the Deed of Agreement, the borrowers had brought in Rs. 325 Crores and what is left was infusion of Rs. 125 Crores. In the revival letter also, there are no terms stipulated that the guarantor or the borrower has to infuse Rs. 125 Crores as stipulated in the Deed of Agreement by way of cash. It was agreed by the guarantor to bringing adequate quantity of Rs. 125 Crores which may be brought in the form of unsecured loans/preference shares or by issuing fresh shares through QIP/FPO/PE/Strategic Investment etc. or by merging/demerging some business divisions into separate Companies/SPV's through scheme/slump sale and inviting strategic investor. So fulfilment of the above said terms can be done through different forms. None of the terms reveals that Rs. 125 Crores has to be paid or to be brought by the borrower to the company by way of cash. So one of the terms of discharge of the liability is merging/demerging some business divi....
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.... of Rs. 125 crore by way of merger reported to the corporate debtor in its reply dated 25/10/2017 is contrary to the terms to be fulfilled by the guarantor. On the other hand, without accepting or rejecting the explanation, what the financial creditor has done is issued a demand notice dated 30/11/2017 to VSL. A copy of the demand notice was produced by the respondent at page 539. It is good to read the demand notice in its entirety:- "Dear Sir, Visa Steel Limited Your letter dated 26.10.2017 and email dated 24.11.2017 The conditions stipulated in CDR approval included inter alia infusion of fresh/additional equity/fund of Rs. 125 crores over and above Rs. 325 crores. 2. The amount of Rs. 325 cr. was brought in the form of cash and routed through the TRA. Needless to add, this additional inclusion of Rs. 125 crore was also required to be brought in the form of cash infusion and to be put in/invalidate in accordance with decision of the lenders of the company. 3. The merger of Visa Bao Limited with Visa Steel Limited has not resulted in any additional cash infusion and any accounting entry leading to such inflation in any figure ....
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....eading of the terms stipulated in the Deed of Guarantee, it appears to me that no terms in the guarantee can be held to be subsisting after the promoters of the borrower bring in additional equity of Rs. 125 crore, over and above the promoters contribution of Rs. 325 crore in the borrower company as envisaged in the CDR package. Clause 37 in the Deed of Agreement is a notwithstanding clause overriding the clauses contrary to the terms referred to in Clause 37. Clause 37 is certain that the guarantee shall not be valid and subsisting after the promoters of the borrower fulfilled the condition. 55. At this juncture Ld. Counsel for the corporate debtor submits that the terms of the guarantee is to be read as a whole and it cannot be split up for the convenience of the financial creditor and that financial creditor could not argue that the Scheme of Amalgamation is not acceptable for want of payment of infusion of fund by way of cash. 56. Referring to in State of Bihar v. Bihar Rajya MSESKK Mahasangh [2005] 9 SCC 129 Ld.Counsel for the corporate debtor submits that even if there is conflict in between various terms stipulated in the guarantee, the non obstante clause, overriding ....
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....in hand. On the other hand, I am of the considered opinion that upon satisfaction of the condition to be fulfilled by the promoters of the borrower by way of bringing additional equity of Rs. 125 crore over and above the promoters' contribution of Rs. 325 crore in the borrower company as envisaged in the CDR package, the liability of the corporate debtor is absolved. It has come out in evidence that the above said term has been fulfilled by the promoters of the borrower. Therefore, the guarantee as on the date of fulfilment of the terms in the guarantee cannot be held as subsisting as per the clause 37 of the Deed of Guarantee executed on 19/12/2017. 60. In view of the above said discussion, I am of the view that the contention put forward by the corporate debtor that the guarantor is not at all in default of the amount claimed by the financial creditor is liable to be accepted as true and correct. The contention on the side of the Applicant is therefore found devoid of any merit and unsustainable as per the terms of guarantee agreement. 61. Another contention put forward on the side of the corporate debtor is that the application is also not maintainable as the signatory of ....
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....ntor in the said case was that without initiating recovery proceedings against the principal borrower i.e. VSL who is the principal borrower in the case in hand, proceeding cannot be initiated against the guarantor. The corporate debtor in the said case contended that no proceedings can be initiated against the guarantor without exhausting its remedy to recover the amount from the principal borrower and filing of the application for CIRP as against guarantor is premature. The above said objection of the guarantor/corporate debtor in the said case has been overruled because the objection of the corporate debtor that the claim put forward against the guarantor is premature has no legal force and because the guarantor's liability is co-existing with that of the principal debtor. The fact in issue considered in the above said application is entirely different from that of the facts in the case in hand. 64. At this juncture Ld. Counsel for the corporate debtor submits that the financial creditor is initiating proceedings against the guarantors and not against the principal borrower and the initiation of proceedings against the corporate debtor in the case in hand is with mala fide in....
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....ears to me that the penal provision as submitted by the Ld. Counsel cannot be invoked in the case in hand. 66. At this juncture the Ld. Counsel appearing for the Financial Creditor has submitted that the principal borrower has confirmed the balance outstanding due to the lenders/Financial Creditor as per its letter dated 05/07/2017 (Annexure Ex-HHHH) and therefore the contentions of the Corporate Debtor that guarantee provided by the Corporate Debtor stands discharged is unsustainable and devoid of any merit. In reply to the said submission on the side of the Financial Creditor the Ld. Counsel for the Corporate Debtor has submitted that Annexure Ex-HHHH, confirmation of balance has been made by the principal borrower and not by the Corporate Debtor and before approving the Scheme of Amalgamation resulting in inflow of total assets of Rs. 575 Crores which has been approved by the Corporate Debt Restructuring Cell (In short, CDR Cell) vide letter dated 27/09/2012 and therefore the balance confirmation by the principal borrower dated 05/07/2017 prior to the merger cannot be relied upon by the financial creditor for proving the existence of liability owed by the corporate debtor on ....
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....e the debt "means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt". Default is defined under section 3(12) of the Code, "means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not repaid by the debtor or the corporate debtor, as the case may be". It is also good to have a look into the definition of financial debt defined under section 5(8) of the Code. It reads as follows:- "(8) "financial debt" means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes- (a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other a....