TaxTMI 
TaxTMI 
2022 (11) TMI 756
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....been admitted leading to initiation of Corporate Insolvency Resolution Process (in short 'CIRP') of the corporate debtor Fivebro International Private Limited (in short 'FIPL'). 2. The facts of the case, as stated and argued by the Appellant, are that M/s. Doshion Veolia Water Solutions Private Limited (in short 'Doshion') took a loan in the year 2014 from a 'consortium of banks' led by Bank of Baroda and consisting of three other banks vis. Union Bank of India, Standard Chartered Bank and IDBI Bank Limited in the year 2014 and the corporate debtor FIPL signed a Deed of Guarantee on 27.6.2014 with IL&FS Trustee Company Limited as "Security Trustee' acting for and on behalf of the 'consortium of banks' with the names of the four participating banks included in the Schedule of Deed of Guarantee. The Appellant has further stated that a restructuring of the loan was undertaken by the 'consortium of banks', whereby an increase in debt amount upto Rs.422.11 crores was approved and actual disbursement of Rs.408.64 crores was made to the borrower Doshion. The Appellant has further stated that Standard Chartered Bank did not lend its share in the restructured loan to Doshion. 3. It is sta....
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....d of Guarantee and a perusal of the Deed of Guarantee would reveal that the guarantee was executed by FIPL in favour of the Security Trustee IL&FS Trust Company Limited. She has claimed that it is only the Security Trustee, who could invoke the guarantee in terms of clause 20 of the Deed of Guarantee read with clause 4 of the Security Trustee Agreement and clauses 7.1 and 7.3 of the Inter-se Agreement. 7. Further, the Learned Counsel for Appellant has argued that a conjoint reading of clause 4 of the Security Trustee Agreement and clause 7 of the Inter-se Agreement leads to inescapable conclusion that even if there is a default, the lender has to act through the Security Trustee in order to take enforcement action, and therefore, IDBI Bank does not have the requisite entitlement to independently file application under section 7 of IBC after declaring an Event of Default. To further buttress his argument regarding locus standi of IDBI Bank to invoke section 7, the Learned Counsel for Appellant has strongly argued that IDBI Bank is a stranger to the Deed of Guarantee and only Security Trustee, who represents all the banks, could invoke the guarantee and consequently file application....
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....pect of a single debt or specific transactions, it comes to an end when the guaranteed debt that is paid or the promise is duly performed. In the instant case, the guarantee was given in exchange of the promise that one single sum of Rs. 408.64 crores was going to be released to rejuvenate the borrower company and any amount less than the promised amount could not have rejuvenated the company and therefore, the guarantee that was given in exchange of single and indivisible transaction stood discharged. 12. In support, the Learned Counsel for Appellant has cited the judgment of Hon'ble High Court of Bombay in the mater of Keshavlal Harilal Setalvad vs. Pratapsing Moholabhai Sheth (1932), 34 BOMLR 167 to claim that the sureties made in response to an agreement were sureties for the original contract, and when there is a violation in the amount advanced, the sureties stood discharged, wherein it is held as hereunder:- "when a contract is varied in a substantial particular, it is not for the Court to say that the surety who undertook the burden of the original contract must or ought to have undertaken the burden of the contract as subsequently varied ........................... No d....
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....ee is to act on behalf of all the banks and financial institutions as their agent pursuant to the Security Trustee agreement dated 26.11.2013 but that is not a bar to any individual bank taking action under its own financing agreement. He has referred to the Security Trustee Agreement, particularly clauses 2.2.1.(iii) and 14 to maintain that the borrower is under obligation to perform all its duties under respective financing documents irrespective of anything written in the Security Trustee Agreement. He has further submitted that as per clause 8 of the Deed of Guarantee, the corporate debtor has given continuing guarantee to the borrower's debt and therefore the corporate debtor is under guarantee obligation till the borrower has satisfied the dues of repayment to all the lenders. 16. The Learned Counsel for Respondent IDBI Bank has further argued that the IDBI Bank has claimed default in debt for its own outstanding amount only and not for the debt of all the consortium members. He has added that after restructuring of the loan, the consortium member banks entered into an Inter-se Agreement dated 26.11.2013 wherein clause 4 stipulates that the rights and obligations of each len....
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....two private parties and not consortium lending under financial system, as is the case in the present matter. He has also referred to the admission order passed by NCLT, Chennai dated 6.2.2019 in CP 989/IB/2018, by which the corporate guarantee given by another group company, namely, Thomson Lusa Metal Private Limited, which had also given corporate guarantee for the restructured amount, has been initiated, and claimed that the FIPL and M/s. Thomson Lusa Metal Private Limited are both group companies of the same group having common promoters and therefore, the same principle will apply in the present case too. He has submitted that the issue of corporate guarantee and continuing liability under IBC is no longer res integra as per the settled legal position held by the Hon'ble Supreme Court in the matter of State Bank of India vs. V. Ramakrishnan & Ors. (AIR 2018 SC 3876). 20. In the facts of the present case except for the fact that the amount advanced is varied, because Standard Chartered Bank did not carry out its obligations post restructuring of the loan, there are no objection or material changes insofar as the loan of IDBI Bank is concerned. Therefore, the judgment of the Hon....
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.... relation to the matters set out below shall be taken by the Lenders or the Lead Bank or consultation with the Lenders in the matter set out below:- Xx xx xx xx b) declaring an Event of Default under the Financing Documents and/or recall of the Facilities. Xx xx xx xx 7.2 Any Lender/s proposing to take any decision / action in connection with the aforesaid matters shall intimate the Security Trustee about such action by a written notice and the Security Trust shall inform the same to the other Lenders within a day of receipt of such notice of such proposed decision / action by such Lenders. The Lead Bank shall, within 15 (fifteen) days of receipt of such notification from the Security Trustee convene a meeting of the Consortium of Lenders for deciding / determining the course of action to be taken on the proposal received. Decision as taken at such meeting by unanimously or by the Majority Lenders holding more than 66.66% of the total amount of credit facilities sanctioned by members of BOB consortium shall be communicated to the Security Trustee and the Borrower by the Lead Bank within the period decided at the aforesaid meeting and shall be binding on all the Lenders. A c....
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....earing." Xx xx xx xx 1. If at any time default shall be made by the Borrower in payment of the principal sum (not exceeding Rs. 408.64 crores) together with interest, costs, charges, expenses and/or other moneys for the time being due to the BOB Consortium in respect of or under the abovementioned credit facilities or any one of them the Guarantor shall forthwith on demand pay to the BOB Consortium the whole of such principal sum (not exceeding Rs. 408.54 crores) together with interest, costs, charges expenses and/or other money as may be due to the BOB Consortium in respect of the abovementioned credit facilities. Xx xx xx xx 7. In order to give effect to the Guarantee herein contained the BOB Consortium shall be entitled to act as if the Guarantor were principal debtors to the BOB Consortium for all payments guaranteed by them as aforesaid to the BOB Consortium. Xx xx xx xx 20. The Guarantor agrees that the loans hereby guaranteed shall be payable to the BOB Consortium on the BOB Consortium serving the Guarantor with a notice requiring payment of the amount and such notice shall be deemed to have been served on the "Guarantor either by actual delivery thereof to the G....
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....action in connection with the aforesaid matters shall intimate the Security Trustee about such action by a written notice and the Security Trustee shall inform the same to the other Lenders within a day of receipt of such notice of such proposed decision / action of such Lender/s. The Lead Bank shall, within 15 (fifteen) days of receipt of such notification from the Security Trustee convene a meeting of the consortium of Lenders for deciding / determining the course of action to be taken on the proposal received. Decision as taken at such meeting by unanimously or by the Majority Lenders holding more than 66.66% of the total amount of credit facilities sanctioned by members of BOB consortium shall be communicated to the Security Trustee and the Borrower by the Lead Bank within the period decided at the aforesaid meeting and shall be binding on all the Lenders. A copy of the aforesaid communication shall be marked by the Lead Bank to all the Lenders. All the Lenders shall take such action as is decided at the aforesaid meeting of the Consortium of Lenders. It is hereby agreed by and between the Parties hereto that the provisions contained in or implied by the Financing Documents/S....
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....ender or the Lead Bank in consultation with the Lenders. Clause 7.2 of the Inter-se Agreement makes it clear that any Lender proposing to take any decision/action in the declaration of 'Event of Default as per Clause 7.1 has to intimate the Security Trustee about such action by a written notice and the Security Trustee shall then inform the same to the other Lenders within a day of receipt of such notice of such proposed decisions/actions by such lenders, whereupon the Lead Bank shall, within 15 days of receipt of such notification from the Security Trustee convene a meeting of the consortium of Lenders for deciding/determining the course of action to be taken on the proposal received. It is thus, clear that clause 7.2 of the Inter-se Agreement sets out a clear procedure by which an Event of Default can be declared by any an individual lender belonging to the Bank of Baroda consortium and this procedure is quite akin to the procedure set out in clause (4) of the Security Trustee Agreement regarding declaration of an 'Event of Default'. 26. In the context of the stipulation of an Event of Default under Clause 7.2 of the Inter-se Agreement and clause (4) of the Security Trustee Agre....
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....ed under the actions for which the provisions are made in the Inter-se Agreement and the modality of taking such action is clearly set out in clause 7.2. Even for the enforcement of securities, clause 7.3 of the Inter-se Agreement clearly provides that the enforcement of any or all of the securities, shall be done by the Security Trustee as per provisions of the Security Trustee Agreement on behalf of all the lenders and as instructed by the majority lenders. Therefore, clause 7.5 has to be read conjointly with clauses 7.1, 7.2 and 7.3 of the Inter-se Agreement. If that is done, we find that the action taken by the IDBI Bank in declaring 'Event of Default' is not in consonance with the provisions of Inter-se Agreement. We, therefore, conclude that the Adjudicating Authority has committed an error by placing reliance on a faulty interpretation and understanding of clause 7.5 of the Inter-se Agreement. 29. From the above discussion, it is clear that the Respondent IDBI Bank was not entitled to act independently in declaring an 'Event of Default' in respect of its individual loan and recalling the loan advanced by it to the borrower Doshion and seeking repayment of the said loan from....