AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2021 (8) TMI 1389
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 Appellants. It is claimed that the personal pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sional 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 15.11.2019 enforcing Part-III of IBC to limited extent of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 Respondents vide Mortgaged Deed dated 20th October, 2014.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uthority 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 To be paid in full within 30 days from the effective date 2 Secured Financial Creditors 6,88,80,539 Rs. 5,58,00,000/- (Rupees Five Crore Fifty-E....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 Resolution Plan have been complied with, inter alia Adjudicating Authority went on to give direction in Para 26 of the impugned order as under:- "26. It is directed that Mrs. Megha Nitin Naik and Mr. Nitin Chandrakant Naik, the owners of the premises as mentioned above and the Corporate Debtor, shal....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 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 Leave and License Agreement of Respondent No.1- Successful Resolution Applicant was terminated by a Deed of Cancellation on 22.01.2018 but however, 'Sanidhya Industries Pvt. Ltd.' (now Successful Resolution Applicant) has continued to remain in possession of the said premises and that the Corporate Debtor has not ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,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 not get the personal properties of the Appellants valued and without doing so, the same have been included in the Resolution Plan and have been undervalued. The Resolution Professional has not claimed that the personal properties of the Appellants were got valued in CIRP. The Reply of Respondent Nos.4 and 5 (Diary No. 23074) rather claims that during CIRP they got the properties of Appellants valued. That would be irrelevant because, even if the properties were to be included, it would be for Resolution Professional to get valuat....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 jurisdiction of the Adjudicating Authority conferred by the Code, has also not been brought into force. 16. 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). 17. Section 14 refers to four matters that may b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ial 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 aforesaid two Insolvency Acts and not under the Code. Indeed, by a Press Release dated 28.08.2017, the Government of India, through the Ministry of Finance, cautioned that Section 243 of the Code, which provides for the repeal of said enactments, has not been notified till date, and further, that the provisions relating to insolvency resolution and bankruptcy for individuals and partnerships as contained in Part III of the Code are yet to be notified. Hence, it was advised that stakeholders who intend to pursue their insolvency cases may approach the appropriate ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the resolution plan. Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation." 20. The Hon'ble Supreme Court observed that Section 31 is one more factor in favour of the fact that a personal guarantor is required to pay for debts due without any moratorium apply....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rector 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 settlement", the final resolution plan dated 02.04.2018, as approved on 23.10.2018, specifically provided: "Financial Creditors: Pursuant to the approval of this Resolution Plan by the Adjudicating Authority, each of the Financial Creditors shall be deemed to have agreed and acknowledged the following terms: The payment to the Financial creditors in accordance with this Resolution Plan shall be treated as full and final payment of all outstanding dues of the Corporate Debtor to each of the Financial Creditors as of the Effective Date, and all agreements and arrangements entered into by or in favour of each of the Financial Creditors, including but not limited to loan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uarantee 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 retained by the Financial Creditors and shall continue to be enforceable by them." (emphasis supplied) We were also informed by the learned senior counsel that the personal guarantees of the promoter group have been invoked and legal proceedings in respect thereof are pending. It has been pointed out to us that Shri Prashant Ruia and other members of the promoter group, who are guarantors, are not parties to the resolution plan submitted by ArcelorMittal and hence, the resolution plan cannot bind them to take away rights of subrogation, which they may have if they are ordered to pay amounts guaranteed by them in the pending legal proceedings. 66. Section 31(1) of the Code makes it clear that once a resolution plan is approved by the Committ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 the business of the corporate debtor. All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor. This the successful resolution applicant does on a fresh slate, as has been pointed out by us hereinabove. For these reasons, the NCLAT judgment must also be set aside on this count." 22. Perusal of the above Judgment of the Hon'ble Supreme Court shows that in that matter the Hon'ble Supreme Court looked into the contents of personal guarantee dated 28.09.2013. The Hon'ble Supreme Court observed that it would say nothing which would affect the pending litigation on account of invocation of those guarantees. It is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xercise 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 already over, the matter is remitted back to the Adjudicating Authority to pass appropriate order of liquidation under Section 33 of the IBC. No order as to costs. Company Appeal (AT) (Insolvency) No. 239 of 2021 26. This Appeal has been filed by the Appellants against impugned order dated 28.01.2021 passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench, Court-III) in M.A. 919/2020 in C.P. (IB)-1973(MB)/2018. After the Resolution Plan was approved by the Adjudicating Authority in M.A. 3439/2019 which we have discussed in the above Company Appeal (AT) (Insolvency) No. 257 of 2020, the Adjudicating Authority passed order in M.A. 919/2020 which was filed by the Successful Resolution Applicant which order reads as under;- "M.A. 919/2020 This is an application filed....