TaxTMI 
TaxTMI 
2021 (10) TMI 698
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.... application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (for short "IBC"). The resolution plan submitted by M/s. EDCL infrastructure limited and M/s. US Construction Private Limited was approved by the National Company Law Tribunal, Kolkata Bench by its order dated February 24, 2020. In the meantime, the respondent no. 1 issued a show cause notice dated November 19, 2019 to the promoters/ directors of TCL. The petitioners replied to the show cause notice and appeared before the Wilful Defaulters Committee on December 27, 2019 for a personal hearing. The Wilful Defaulters Committee in its meeting held on March 11, 2020 declared the petitioners as wilful defaulters. The petitioners made representations against the aforesaid decision classifying them as wilful defaulters. The written representation received from the petitioners as well as the response of the Department was placed before the Wilful Defaulters Review Committee in its meeting held on August 27, 2020. The Review Committee by an order dated October 13, 2020 held that the petitioners are fit to be declared as wilful defaulters and their names are to be forwarded to Credit Information Companies and other act....
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....pon a judgment of the Hon'ble Supreme Court of India in the case of Prestige Lights Ltd. vs. State Bank of India, reported at (2007) 8 SCC 449 and submitted that the instant writ petition is liable to be dismissed on the ground of suppression alone. Mr. Gupta further contended that the show cause notice refers to the series of defaults committed by petitioners and the same cannot be said to be an isolated default in any manner whatsoever. Mr. Gupta relied upon a judgment of a co-ordinate bench of this court in the case of Gouri Shankar Jain vs. Punjab National Bank reported at AIR 2020 (Cal) 90 in support of his submission that the contractual obligations between the financial creditor and the guarantor are not extinguished by the outcome of a proceeding under IBC, 2016. In reply Mr. Saha, learned Senior Counsel for the petitioner admitted the pendency of proceedings before the Debt Recovery Tribunal. He stated that, through, advertence such fact was not stated in the writ petition. By referring to clause 2.6 of the Master Circular Mr. Saha contended that a non-group corporate or an individual guarantors can be classified as an willful defaulters in case such guaranties were giv....
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.... the borrowers and should not be decided on the basis of isolated transactions/ incidents. The default to be categorised as wilful must be intentional, deliberate and calculated." Paragraph 2.2.1 of the said Master Circular defines diversion of funds as refer to at paragraph 2.1.3 above. Paragraph 2.2.1 is extracted below- "2.2 Diversion and siphoning of funds 2.2.1 Diversion of Funds: The term 'diversion of funds' referred to at paragraph 2.1.3 (b) above, should be construed to include any one of the undernoted occurrences: (a) utilisation of short-term working capital funds for long-term purposes not in conformity with the terms of sanction; (b)deploying borrowed funds for purposes/activities or creation of assets other than those for which the loan was sanctioned; (c) transferring borrowed funds to the subsidiaries/ Group companies or other corporates by whatever modalities; (d) routing of funds through any bank other than the lender bank or members of consortium without prior permission of the lender; (e) investment in other companies by way of acquiring equities/ debt instruments without approval of lenders; ....
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....Wilful Defaulters Committee. The respondent no. 4 herein by a letter dated January 13, 2020 requested the writ petitioners to provide all the necessary documents to substantiate their submission before the Wilful Defaulters Committee. The petitioners thereafter submitted the documents in support of their submissions. The resolution plan submitted by EDCL and USC was approved by the Learned National Company Law Tribunal, Kolkata Bench by its order dated February 24, 2020 and the EDCL took control of TCL along with its assets and liabilities. The Wilful Defaulters Committee observed that the writ petitioners could not provide convincing replies on the charges of Wilful Defaults in terms of Serial no. 2.1.3(b) [2.2.1 (d)] of the Master Circular of RBI on Wilful Defaulters dated July 1, 2015. The Wilful Defaulters Committee of the Bank declared the writ petitioners as wilful defaulters. The respondent no. 4 issued a notice dated April 22, 2020 requesting the writ petitioners to submit their further representation on the classification of wilful defaulter before the Review Committee. The writ petitioners by a letter dated April 29, 2020 reiterated the submissions made by them in t....
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....arned National Company Law Tribunal in clause 15.14 specifically provides that the existing guarantees of the erstwhile promoters of the corporate debtor in favour of the financial creditors shall continue to be in full force and effect and the financial creditors shall always have the right to enforce the same, even post or during implementation of the resolution plan. Thus, it is evident there from that the financial creditor has the right to enforce the guarantee given by the petitioners herein as erstwhile promoters of TCL. It is now well settled that the corporate Debtor in a proceeding under the IBC, 2016 may stand discharged of its liability to its creditors but such discharge does not absolve the surety of its liability. A co-ordinate bench of this Hon'ble Court in Gouri Shankar (supra) after considering the provisions of Section 31 of the IBC, 2016 observed that the contractual obligations between the financial creditor and the surety are not obliterated or modified or suspended by the eventual outcome of a proceeding under section 7 of the IBC. This court in Gouri Shankar Jain (supra) held, thus- "35. In a proceeding under Section 7 of the Code of 2016, the co....
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....ly to a personal guarantor. The Code of 2016 does not allow personal guarantors to escape their liability. When an application under Section 7 of the Code of 2016 is admitted by the Adjudicating Authority, the steps taken subsequent thereto flows out of the statute. The two termination points of an application under Section 7 of the Code of 2016, after the admission of such application, do not result in any variance, made without the surety's consent, in the terms of the contract between the principal debtor and the creditor to constitute a discharge of a surety under Section 133 of the Act of 1872." Thus, in cases where a director found to be in wilful default is a guarantor or a mortgagor, they have to carry the burden of the financial obligation to ensure repayment. In such a case where the directors are guarantors and fails and neglects to fulfill their financial obligation of repayment, they can be classified as wilful defaulters as has been held by a Division Bench of the Hon'ble High Court at Calcutta in FMA 906 of 2020 (Axis Bank Limited vs. Gourav Dalmia & Ors. ). However, in the said judgment the Division Bench held that the writ petitioners therein stood rid of their ....
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.... of the Executive Director and two other senior officials, being the First Committee, after following paragraph 3(b) of the Revised Circular dated 01.07.2015, must give its order to the borrower as soon as it is made. The borrower can then represent against such order within a period of 15 day to the Review Committee. Such written representation can be a full representation on facts and law (if any). The Review Committee must then pass a reasoned order on such representation which must then be served on the borrower. Given the fact that the earlier Master Circular dated 01.07.2013 itself considered such steps to be reasonable, we incorporate all these steps into the Revised Circular dated 01.07.2015." The petitioners were given an opportunity to make a representation against the decision of the first committee to classify them as wilful defaulters. The writ petitioners submitted a representation reiterating their earlier reply which was submitted in response to the show cause notice. The Review Committee after considering the representations and the submissions made by the writ petitioners held that the borrower has routed substantial transactions through non-TRA accounts which ....