TaxTMI 
TaxTMI 
2021 (8) TMI 1389
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....Advocates for R4 & 5. CA Raghunath S for R4 & 5 JUDGMENT A.I.S. Cheema, J. Company Appeal (AT) (Insolvency) No. 257 of 2020 1. The Appellants, Promoter and Suspended Directors of the Corporate Debtor- 'Simrut Foods & Hospitality Private Limited' have filed this Appeal against impugned order dated 13.11.2019 passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench) in M.A. No. 3439/2019 in CP No. 1973/ 2018. By the Impugned Order, the Adjudicating Authority allowed the Application filed by Respondent No.3- Resolution Professional seeking approval of the Resolution Plan approved by the Committee of Creditors which plan was submitted by Respondent No.1- 'Sanidhya Industries LLP'. Aggrieved by the approval of the Resolution Plan, the Appellants have filed this Appeal mainly on the ground that the Resolution Plan has provision to transfer personal properties of the Appellants who had given their personal properties as security in favour of the Corporate Debtor, whom Corporate Debtor took loan. 2. The Appeal claims and it is argued on behalf of the Appellants that the Resolution Plan approved made provision of transfer of personal properties of the....
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....claim that the Respondent No.3- Resolution Professional filed M.A No. 3439 of 2019 for approval of the Resolution Plan and the Appellants filed M.A No.3486 of 2019 raising objections. The Resolution Plan was approved without deciding the objections raised by the Appellants. It is argued for the Appellants that the Resolution Professional in connivance with the Successful Resolution Applicant let personal properties of the Appellants be included in the Resolution Plan. When such information was not put in the Information Memorandum published for people to know, the connivance is apparent. The people at large did not know that the properties worth crores of rupees would be available along with assets of the Corporate Debtor. Appellants claim that they had only given their personal properties as security to Financial Creditors to provide loan to the Corporate Debtor. Their properties could not have been included in the Resolution Plan when Part-III of the IBC has not been enforced. 4. Before proceeding further, it needs to be noted here that in this matter the Resolution Plan was approved on 13.11.2019 and Section 2(e) and provisions of Part-III of IBC came to be notified on 15.11.....
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....sets of the Corporate Debtor available for Resolution) has claimed that Resolution Plan complied with all the necessary provisions of the IBC and the Regulations and the CIRP was carried out as per the provisions of law. The Resolution Professional has mentioned in the reply and it is not in dispute that two registered Valuers had been appointed who stated the average liquidation value of the Corporate Debtor as just Rs.1,75,000/-. Copy of the Information Memorandum has been filed by the Resolution Professional as Annexure-D of the reply (Diary No.20035) at Page 51. It is also claimed by him that during the pendency of CIRP, the Respondent Nos.4 and 5- Financial Creditors have in exercise of their statutory powers under SARFAESI Act taken physical possession of the assets of the Appellants and the said assets are in custody of the Financial Creditors. It is claimed that in such contingency, the Resolution Plan of the Respondent No.1 came to be accepted. 7. Respondent Nos. 4 and 5, the Financial Creditors have also filed reply and it is argued by these Respondents that the Appellants are the Promoters of the Corporate Debtor and they had mortgaged the subject properties to these ....
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....r'. On such basis, these Respondents claim that the Adjudicating Authority rightly approved the Resolution Plan and that the Appeal should be dismissed. 9. Both sides have argued against or in favour (as the case may be) with regard to Paras 15 to 18 and 26 of the Impugned Order. The Adjudicating Authority while referring to the Resolution Plan of Respondent No.1 observed in Paras 15 to 18 in the impugned order, as under:- "15. The proposed break up of payments to the Secured Financial Creditors under this plan is as below: Sr. No. Name of the Creditor Amount admitted Voting Share Settlement Amt. Settlement % 1 The Yashwant Coop Bank Limited 59,33,467 8.61% 49,00,000 82.58 2 The Chikhli Urban Coop Bank Limited 6,29,47,072 91.39% 5,09,00,000 80.86 5,58,00,000 16. The Resolution Plan approved by the Committee of Creditors provides for the following payments to the stakeholders : Sr. No. Particulars Amount Admitted (INR Cr) Settlement Value offered (INR Cr.) Terms of Payment 1 Corporate Insolvency Process Cost At Actual At Actual ....
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....war Peth, Taluka - & Havel, Pune District Shop no 3 is 28.80 Shop No. 4 is 28.80 along with Area of 2.78 below the staircase 2. Mrs. Megha Nitin Naik Shop No 5 Shukrawr Peth, Taluka - & 28.80 built up along with garden space of 21.36 3 Mrs. Megha Nitin Naik First Floor Office No. 104 & 105, Shukrawar Peth, Taluka -Havel, Pune Office no 104 & 15 admeasuring 44 4 Mrs. Megha Nitin Naik First Floor Office No. 107 & 39.61 5 Mr. Nitin Chandrakant Naik Third Floor Office No. 301 108, Shukrawar Peth, Taluka - Havel, Pune District 58.064, together with Terrance garden/premises admeasuring about 130.06 It is also submitted that the Financial Creditors shall be at liberty to proceed against the properties of the Promoters erstwhile Directors/Guarantors other than those mentioned above to recover their balance." 10. Thereafter, the Adjudicating Authority referred to Sections 30 and 31 of the IBC as well as Regulations 38 & 39 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulation, 2016' ("CIRP Regulations" for short) and concluded in Para 21 that mandatory contents of Resolu....
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....btor for determining the financial position of the Corporate Debtor. He has to make a list of assets and liabilities of Corporate Debtor. Regulation 36 of the CIRP Regulations provides as to what is required to be incorporated in the Information Memorandum which is to be issued by the Resolution Professional. Here also the Information Memorandum requires including details of the assets and liabilities of the Corporate Debtor as per Regulation 36(2) (a). Sub-clause (f) of Regulation 36(2) provides that the Information Memorandum should give details of guarantees that have been given in relation to the debts of the Corporate Debtor by other persons, specifying which of the guarantors is a related party. Thus reference to details of Guarantees given by Related Party has to be there. That reference does not make property of Guarantor a property of Corporate Debtor for which Section 36(2) (a) is there. If this is kept in view when we have perused copy of the Information Memorandum (Annexure-D) filed by Respondent No.3- Resolution Professional, we find that inter alia the Information Memorandum first referred to the brief background of the Corporate Debtor which mentions that the Leav....
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....at piece and parcel of the city survey no 1025+1024B in building silver prestige, ground floor, Shop No 3,4 & 5 in silver prestige condominium situated at Shukrawar Peth, Pune, Taluka-Haveli. 03/10/2014 1,39,13,000/- And 2,09,25,000/- Total 3,48,38,000/- First floor commercial offices bearing no 104,105,107,108,201,301 in the building known as Silver Prestige Condominium situated at Shukrawar Peth, Pune, Taluka-Haveli. 03/10/2014 71,04,000/- 63,95,000/-30,45,000/- 1,58,99,000/- Total 3,24,43,000/- Survey no 15/1/1 in Renuka Nagari Co-Op Housing Society 03/10/2014 13,25,000/-Total-13,25,000/- 3171/252 Flat No 10,11 and 12 Eknath Smruti Builduing, Guruwar Peth, Pune 03/10/2014 26,97,000/- 28,53,000/- 48,10,000/-Total-1,03,60,000/- The above security given is in respect of loans granted to Corporate Debtor, promoters and their related parties." 15. Clearly this is in the context of the security given under Regulation 36(2) (f). It has to be distinguished from assets of the Corporate Debtor which is not shown in the comparative balance sheet which we have reproduced. The Appellants have argued that the Resolution Professional did ....
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....er the creditor is proceeded against, the guarantor stands in the shoes of the creditor, Section 14 would apply in favour of the personal guarantor as well. The State Bank of India thus was taken against Respondent No.1- Personal Guarantor. Appeal filed against the order of the Adjudicating Authority came to be dismissed and thus, the matter was carried to the Hon'ble Supreme Court. In such set of facts, the Hon'ble Supreme Court considered the various provisions of the IBC, including Section 60 as it then stood. In paras 15 to 17, it was observed, as under:- "15. The first important thing that needs to be noticed is that, as has been stated earlier in this judgment, Part III of the Code has not yet been brought into force. This part is entitled "Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms". The repealing provision, namely Section 243, which repeals the Presidency Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920, has also not been brought into force. Section 249, which amends the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, so that the Debt Recovery Tribunals under that Act can exercise the jurisdicti....
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.... in the Resolution Plan so as to transfer title. This is clear from further perusing the judgment in the matter of "State Bank of India v. V. Ramakrishnan & Anr." which shows in Para 19, as under:- "19. We are afraid that such arguments have to be turned down on a careful reading of the Sections relied upon. Section 60 of the Code, in sub-section (1) thereof, refers to insolvency resolution and liquidation for both corporate debtors and personal guarantors, the Adjudicating Authority for which shall be the National Company Law Tribunal, having territorial jurisdiction over the place where the registered office of the corporate person is located. This sub-section is only important in that it locates the Tribunal which has territorial jurisdiction in insolvency resolution processes against corporate debtors. So far as personal guarantors are concerned, we have seen that Part III has not been brought into force, and neither has Section 243, which repeals the Presidency-Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920. The net result of this is that so far as individual personal guarantors are concerned, they will continue to be proceeded against under the af....
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.... applicant xxx xxx xxx" 19. Thus, the Application under Section 10 of the IBC in Form-6 would require the Corporate Applicant to give such particulars regarding the guarantees. The Hon'ble Supreme Court has read these Rules with Regulation 36(2) which we have already referred with regard to the contents to be incorporated in the Information Memorandum. As such, the Hon'ble Supreme Court observed that the reliance of the personal guarantor in that matter on Section 31 of the IBC would not be helpful to the personal guarantor. To recall, the Personal Guarantor in that matter wanted to rely on Section 14 of Part II to stop action against Personal Guarantor. Section 31(1) of the IBC reads as under:- "31. Approval of resolution plan. - (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authori....
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.... judgment dated 15.11.2019 in Paras 63 to 67 of the Judgment dealt with the topic of "Extinguishment of Personal Guarantees and Undecided Claims". The said paragraphs 63 to 67 are reproduced as under:- "Extinguishment of Personal Guarantees and Undecided Claims 63. Shri Gopal Subramanium and Shri Rakesh Dwivedi have also appealed against the extinguishment of the rights of creditors against guarantees that were extended by the promoters/promoter group of the corporate debtor. According to them, this was done by a side wind by the Appellate Tribunal without any reasons for the same. 64. Shri Prashant Ruia a promoter/director of the corporate debtor in his personal guarantee dated 28.09.2013, specifically stated as follows : "7. The obligations of the Guarantor under this Guarantee shall not be affected by any act, omission, matter or thing that, but for this Guarantee, would reduce, release or prejudice any of its obligations under this Guarantee (without limitation and whether or not known to it or any Secured Party) including : xxx xxx xxx (g) any insolvency or similar proceedings." Also, under the caption "terms of se....
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.... deemed to have waived all claims and dues (including interest and penalty, if any) from the Corporate Debtor arising on and from the insolvency Commencement Date, until the effective Date." 65. Shri Rohatgi, learned senior advocate appearing on behalf of Shri Prashant Ruia, also pointed out Section XIII (1)(g) of the resolution plan dated 23.10.18, in which it is stated as follows: "Upon the approval of the Resolution Plan by the Adjudicating Authority in relation to guarantees provided for and on behalf of, and in order to secure the financial assistance availed by the Corporate Debtor, which have been invoked prior to the Effective Date, claims of the guarantor on account of subrogation, if any, under any such guarantee shall be deemed to have been abated, released, discharged and extinguished. It is hereby clarified that, the aforementioned clause shall not apply in any manner which may extinguish/affect the rights of the Financial Creditors to enforce the corporate guarantees and personal guarantees issued for and on behalf of the Corporate Debtor by Existing Promoter Group or their respective affiliates, which guarantees shall continue to be retaine....
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....e resolution plan which states that the claims of the guarantor on account of subrogation shall be extinguished, cannot be applied to the guarantees furnished by the erstwhile directors of the corporate debtor. So far as the present case is concerned, we hasten to add that we are saying nothing which may affect the pending litigation on account of invocation of these guarantees. However, the NCLAT judgment being contrary to Section 31(1) of the Code and this Court's judgment in State Bank of India (supra), is set aside. 67. For the same reason, the impugned NCLAT judgment in holding that claims that may exist apart from those decided on merits by the resolution professional and by the Adjudicating Authority/Appellate Tribunal can now be decided by an appropriate forum in terms of Section 60(6) of the Code, also militates against the rationale of Section 31 of the Code. A successful resolution applicant cannot suddenly be faced with "undecided" claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who successfully take over t....
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....ara 26 of the impugned order (referred supra)), that the owners of the premises as mentioned in the judgment shall enter into Tripartite Agreements for transfer of the premises (as mentioned in para 18 of impugned order). In fact, if para 18 is seen, after describing the properties in the chart there is also portion added which says that the Financial Creditors shall be at liberty to proceed against the properties of the Promoters erstwhile Directors/ Guarantors "other than those mentioned above to recover their balance". This, in the Resolution Plan would be blank cheque given to proceed even with regard to any other property also of the Personal Guarantors. In our view, without resorting to appropriate proceedings against the Personal Guarantors of Corporate Debtor this is irregular exercise of powers. 25. For the above reasons, we pass the following order:- ORDER The Appeal is allowed. The impugned order is quashed. The Resolution Plan approved by the Adjudicating Authority is rejected. All actions taken in consequence of the impugned order approving the Resolution Plan shall stand set aside. As the Insolvency Resolution Process period under Section 12 of the IBC is alr....