AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (3) TMI 898
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.... the impugned notice itself. 3. The Company namely M/s Trimurti Concast Pvt ltd is in default of the dues of the respondent corporation and, as such, would be addressed as 'defaulter company' hereinafter. 4. The brief facts relevant to decide the controversy at hand are that on an application/petition filed by the M/s Ram Alloys Casting Pvt ltd under Section 7 of the Insolvency and Bankruptcy Code, 2016 (in short "IB Code" 2016) and the rules framed thereunder, the defaulter company went into insolvency. At the time of filing of the present petition, insolvency resolution process with respect to the defaulter company (which may also be mentioned as the 'Corporate debtor' hereinafter) had already been commenced. By an order dated 22.3.2022, the National Company Law Tribunal (in short NCLT) had approved the resolution plan and on the application filed by the respondent no.1 Corporation namely Paschimanchal Vidyut Vitran ltd for its claim of electricity dues, it was directed by the Tribunal that since the approval of resolution plan was under consideration, the claim as prayed be considered before the approval of the resolution plan by the adjudicating authority. The....
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....fter filing of the present writ petition, the liquidation process has been initiated under Section 33 of the IB Code' 2016 and the distribution of assets of the defaulter company/Corporate debtor has been made in accordance with Section 53 of the IB Code, 2016 with the approval of the resolution plan as per the payment schedule provided therein. With the passing of the order dated 22.3.2022 by the NCLT, all the liabilities of the stakeholders mentioned in the resolution plan stood permanently extinguished. The waiver and reliefs, exemptions granted by the NCLT in the order dated 22.03.2022 have been placed before us to assert that after approval of the resolution plan, a creditor is prohibited from initiating proceeding for recovery of its claims which are not part of the resolution plan and all claims except provided in the resolution plan stood permanently extinguished. It was brought before us that the resolution plan has been held to be binding on a Corporate debtor as also all other stakeholders involved and any encumbrance on the asset of the Corporate debtor prior to the approval of the resolution plan stood permanently extinguished on completion of procedural formalitie....
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....mit that once liquidation order has been passed under Section 33 against the Corporate debtor, the liquidator's duty is to form liquidation estate of the "Corporate Debtor" in terms of Section 36(1) of the IB Code to consolidate the claims of creditors in accordance with Section 38 of the Code and then distribute the proceeds of liquidated estate to the creditors in the order of priority prescribed under Section 53 of the Code. 14. In the aforesaid case before the NCLAT, the District Collector had issued notice for recovery of outstanding dues for supply of electricity by auction of movable and immovable properties of the Corporate debtor. On the plea taken therein with regard to the overriding effect of Sections 173 and 174 of the Electricity Act, 2003, it was held that the IBC being a subsequent Act of Parliament, the Electricity Act, 2003 cannot override any provisions of the Code. If a conflict arises between one of the parliamentarian law and other parliamentarian law, the subsequent parliamentarian law has overriding effect on the earlier parliamentarian law. It is settled that earlier parliamentarian law inconsistent must give way to subsequent parliamentarian law. As p....
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....avit filed on behalf of the respondent nos.1 and 2, it was submitted that out of total outstanding dues of the Corporation against the defaulter company to the tune of Rs.9 crores and odd, only an amount of Rs.6,62,848/- has been directed to be distributed as per the approved resolution plan, under the order dated 22.3.2022 passed by the NCLT, Allahabad. 20. A copy of the letter dated 11.01.2018 of the Managing Director of the U.P. Power Corporation ltd has been placed before us to assert that the direction has been issued to Managing Directors of all the Discoms, to recover dues of electricity from the Director/owner of the defaulter company. It is vehemently argued that Clause 4.3 (f)(v) clearly provides that the Directors of the company shall be liable for the electricity dues of the company. 21. In addition to the above, it was further argued that the defaulter company had entered into an agreement dated 8.4.2013 with the licencee, wherein one of its Director namely Sri Ashok Kumar is the signatory. The copy of the application form for supply of electricity alongwith the agreement executed with the defaulter company M/s Trimurti Concast Pvt ltd dated 8.04.2013 has been suppli....
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....te debtor. It is no more res integra that the IB Code is a complete code- provisioning for actions and proceedings relating to, amongst others, reorganisation and insolvency resolution of Corporate persons in a time bound manner for maximisation of value of assets of such persons, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto. [Reference para-19 Laxmi Pat Surana vs Union of India and another reported in (2021) 8 SCC 481] 25. By the Amendment Act 8 of 2018 with effect from 23.11.2017, the provision of Section 2 Sub Section (e) has been substituted as follows:- "2.Application.-The provisions of this Code shall apply to- *** (e) personal guarantors to corporate debtors," 26. In the instant case, the recovery of electricity dues has been initiated against the Directors of the Company during the period when the defaulter company was in insolvency. The resolution plan submitted by the resolution applicant was approved under the order dated 22.3.2022 of the N....
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.... Directors of the defaulter company namely Narendra Singh Pawar seeking to challenge the entire demand notice jointly issued in the name of both the Directors of the Company under Section 3 read with Section 5 of U.P. Government Electrical Undertaking (Dues Recovery) Act, 1958. Another Director of the Company in whose name also the demand notice has been issued along with the petitioner herein, has not joined in the present petition for the reasons best known to him. However, the relief prayed herein is to set aside the entire demand notice dated 30.6.2022 issued jointly in the name of both the Directors seeking for Recovery of Electricity Dues of the defaulter company, namely M/s Trimurti Concast Pvt Ltd on the grounds to assail the same noted above. We are, therefore, required to examine the question as to whether the Director of the Company who is claimed to be the personal guarantor in the matter of payment of electricity dues of the Company would be able to sustain the challenge to the demand of dues of electricity from the personal assets of the Directors, in view of the Insolvency Proceedings concluded in relation to the defaulter company namely the Corporate debtor. 33. T....
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....ia (supra) that in each of the matters referred to in the above noted prohibition, under Section 14, what is conspicuous by its absence is any mention of the personal guarantor. Indeed, the corporate debtor and the corporate debtor alone is referred to in the said Section. A plain reading of the said Section, therefore, leads to the conclusion that the moratorium referred to in Section 14 can have no manner of application to personal guarantors of a Corporate debtor (Reference paragraphs-'19' and '20'). "19. Under Part II of the Code, which deals with "Insolvency Resolution and Liquidation for Corporate Persons", a financial creditor or a corporate debtor may make an application to initiate this process. Once initiated, the Adjudicating Authority, after admission of such an application, shall by order, declare a moratorium for the purposes referred to in Section 14 (See Section 13 of the Code). 20.Section 14 refers to four matters that may be prohibited once the moratorium comes into effect. In each of the matters referred to, be it institution or continuation of proceedings, the transferring, encumbering or alienating of assets, action to recover security inte....
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....nto force on 23.11.2017 would, when it refers to the application of the Code to a personal guarantor of a corporate debtor, apply only for the limited purpose contained in Section 60(2) and (3), as stated hereinabove. This is what is meant by strengthening the Corporate Insolvency Resolution Process in the Statement of Objects of the Amendment Act, 2018." "25. Section 31 of the Act was also strongly relied upon by the Respondents. This Section only states that once a Resolution Plan, as approved by the Committee of Creditors, takes effect, it shall be binding on the corporate debtor as well as the guarantor. This is for the reason that otherwise, under Section 133 of the Indian Contract Act, 1872, any change made to the debt owed by the corporate debtor, without the surety's consent, would relieve the guarantor from payment. Section 31(1), in fact, makes it clear that the guarantor cannot escape payment as the Resolution Plan, which has been approved, may well include provisions as to payments to be made by such guarantor. This is perhaps the reason that Annexure VI(e) to Form 6 contained in the Rules and Regulation 36(2) referred to above, require information as to personal gua....
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....l debtor. As per section 128 of the Indian Contract Act, 1872, the liability of the surety is co-extensive with that of the principal debtor and the creditor may go against either the principal debtor, or the surety, or both, in no particular sequence [ Chokalinga Chettiar v. Dandayunthapani Chattiar, AIR 1928 Mad 1262]. Though this may be limited by the terms of the contract of guarantee, the general principle of such contracts is that the liability of the principal debtor and the surety is co-extensive and is joint and several [Bank of Bihar v. Damodar Prasad, AIR 1969 SC 297]. The Committee noted that this characteristic of such contracts i.e. of having remedy against both the surety and the corporate debtor, without the obligation to exhaust the remedy against one of the parties before proceeding against the other, is of utmost important for the creditor and is the hallmark of a guarantee contract, and the availability of such remedy is in most cases the basis on which the loan may have been extended. 5.10 The Committee further noted that a literal interpretation of Section 14 is prudent, and a broader interpretation may not be necessary in the above context. The assets of t....
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....lf, if and when the principal borrower fails to discharge his obligation in respect of the amount of debt, for the obligation of the guarantor is coextensive and coterminus with that of the principal borrower to defray the debt, as predicated in Section 128 of the Contract Act. 41. In Lalit Kumar Jain vs Union of India and others reported in (2021) 9 SCC 321, the challenge was to the validity of the notifications dated 15.11.2019 issued by the Central Government, Ministry of Corporate Affairs as also the Insolvency and Bankruptcy (application) to adjudicating authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019. 42. One of the issues raised before the Apex Court therein, to challenge the said notification was, that by applying the Code to personal guarantors, the protection afforded by law has been taken away. With reference to Sections 128, 133 and 140 of the Indian Contract Act, 1872, it was argued that once a resolution plan is accepted, the Corporate debtor is discharged of liability. As a consequence, the guarantor whose liability is co-extensive with the principal debtor, i.e the Corporate debtor too is discharged of all liab....
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.... from the debt owed by it to its creditor, by an involuntary process, i.e. by operation of law, or due to liquidation or insolvency proceeding, does not absolve the surety/guarantor of his or her liability, which arises out of an independent contract." 45. In view of the above discussions, it is clear that approval of a resolution plan does not ipso facto absolve the surety/guarantor of his or her liability, which arises out of an independent contract of guarantee. To what extent, the liability of a guarantor can be pressed into service would depend on the terms of the guarantee/contract, itself. For the above position of law, the main contention of the learned counsel for the petitioner to challenge the recovery on the ground that approval of the resolution plan in the insolvency proceeding in relation to the defaulter company namely M/s Trimurti Concast Pvt ltd (Corporate debtor) would ipso facto discharge both the Directors of the defaulter Company, one of whom is the petitioner before us, is liable to be turned down. 46. As noted above, another Director of the defaulter company namely Ashok Sharma, who is not before us, claim to have given personal guarantee for discharge o....