TaxTMI 
TaxTMI 
2024 (4) TMI 539
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....22 against the Impugned Order dated 01.12.2022 passed by the National Company Law Tribunal, Indore Bench (in short 'Adjudicating Authority') in TP 12 of 2019 [CP (IB) 10 of 2019] . 2. M/s IDBI Bank Limited is the Respondent No. 1 and Mr. Keyur Shah is the Respondent No. 2 who is the Interim Resolution Professional of the Corporate Debtor who is Respondent No. 2 herein. 3. Heard the Counsel for the Parties and perused the records made available including the cited judgements. 4. It has been submitted that the Corporate Debtor was incorporated on 17.05.2012 and Corporate Debtor was engaged in the business of millers for which the Appellant has set up mills for milling wheat, gran and other grains and also engaged in the business of flours of all kinds. 5. It has been submitted that between 20.03.2014 to 13.04.2017, M/s. BP. Food Products Private Limited (in short 'Principal Borrower') was granted various financial facilities worth Rs. 181.29 Crores by consortium banks comprising of IDBI Bank Ltd., State Bank of India, RBL Bank Limited (who later assigned loan to M/s. UVARC) and Kotak Mahindra Bank Limited ( in short 'Consortium of Lenders'). 6. It has been stated that ....
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....and securities premium account, which is more 14. It is the case of the Appellant that independent auditors during audit for the financial year 2016-17, recorded that the corporate guarantee given by the Corporate Debtor to the tune of Rs. 181.29 Crores to the principal borrower has been given in contravention to Section 186 of the Companies Act, 2013. 15. The Appellant also submitted that as per the financial statement of 2016-17, cumulative amount of paid up capital, free reserve and security premium of the Corporate Debtor was only Rs. 6,80,44,959/- and cumulative amount of the free reserves and securities premium of the Corporate Debtor was only Rs. 5,79,43,959/- and therefore, the Corporate Debtor could have furnish the corporate guarantee of only Rs. 6.80 Crores (approximately) against the corporate guarantees given by the Corporate Debtor of Rs. 181.29 Crores. 16. The Appellant pleaded that based on Independent Auditor Report, the shareholders of the company specially Mrs. Chandra Prakash Bindal and Mr. Rakesh Bindal addressed a letter dated 04.10.2017 to the Directors of the Corporate Debtor showing their concern about such wrong corporate guarantees given by the C....
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....BI Bank Limited Vs. Rakshit Doshi, Civil Appeal No. 129 of 2023, the Hon'ble Supreme Court of India dismissed the Civil Appeal preferred against the judgement of this Tribunal in Rakshit Doshi (Supra). 22. It is the case of the Appellant that under Financing documents of participating banks in the consortium, the recourse must be taken as per the security trustee agreement. 23. The Appellant highlighted Clause 6 & 7 in interse agreement dated 10.06.2016; Clause E, Clause 4.1 (A), Clause 6.1, Clause 25 in Deed of Guarantee dated 10.06.2016; and Clause C, 2 and 2.1, Clause 2.4, Clause 2.9, Clause 2.9.5 (a), Clause 2.9.5(b), Clause 2.9.5 (c) & Clause 4 in Security Trustee Agreement in support of his case. It is the case of the Appellant that based on these relevant clauses, the Respondent No. 1 was required to convene meeting of all the lenders, to declare event of default and to communicate to the trusteeship for further necessary action and therefore the unilateral action taken by the Respondent No. 1 is in contravention of these agreements and therefore the Respondent No. 1 could not have filed any application under Section 7 of the Code. 24. It is further the case of t....
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.... background in the present appeal when the case was listed for the first time on 28.12.2022 before this Appellate Tribunal, the Appellant gave the statement before this Appellate Tribunal about its willingness to approach the Financial Creditor, for the settlement and requested the Appellate Tribunal that the formation of the CoC may be stayed and this Appellate Tribunal stayed formation of CoC vide it is order dated 28.12.2022. The Appellant stated that the Corporate Debtor wrote letters to Respondent No. 1 regarding is willingness to submit the OTS amount to Rs. 1 Crores vide letter dated 28.12.2022 which was later enhanced to Rs. 1.25 Crores vide its letter dated 24.01.2023 which was against enhanced to Rs. 1.32 Crore vide letter dated 14.04.2023 and finally offered Rs. 1.85 Crore on 14.06.2023 vide Appellant letter dated 14.06.2023. 31. The Appellant alleged that no valid reasons have been submitted by the Respondent No. 1 in rejecting his offer of Rs. 1.85 Crores of OTS against the corporate guarantee given by him amount to Rs. 181.29 Crores, although legally the Corporate Debtor is not obliged to pay anything to the Consortium of Lenders for various reasons explained earli....
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....er on 21.03.2018. The Respondent No. 1 also issued a notice to the Corporate Debtor dated 04.04.2018 invoking the deed of guarantee given by the Corporate Debtor. 38. The Respondent No. 1 further submitted that the Resolution Plan w.r.t. CIRP of the Principal Borrower was approved by the Adjudicating Authority vide its order dated 08.08.2018 whereby the Respondent No 1 received only Rs. 18,58,60,479/- against the total claim of the Respondent No. 1 of Rs. 47,02,44,204/- and as per approved Resolution Plan the rights and claims of the lenders against respective guarantors and shareholders were kept alive and liberty was granted to lenders to proceed against the guarantors which has clearly been stipulated in the Impugned Order i.e., guarantees provided by existing shareholder/ promoters in respect of debts shall not be extinguished by virtue of this Resolution Plan and lenders will retain their rights and claims on the guarantee given by personal/ corporate guarantors of the principal borrowers. 39. The Respondent No. 1 elaborated dubious attempts of the Promoters including the Appellant herein in derailing the resolution process of the Corporate Debtor and the Adjudicating Au....
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....tervenors / other three bankers supported the claims of the Respondent No. 1 in open court. The Respondent No. 1 submitted that in view of these facts, the judgment of Rakshit Doshi (Supra) is just not applicable in the present appeal. 44. The Respondent No. 1 highlighted the significant clauses of the deed of guarantee dated 10.06.2016, namely, Clause 3, 4, 6.2, 10,14, 18 and 20. 45. The Respondent No. 1 also highlighted the various section clause giving protection to the lenders in the security trustee agreement vide clause 'D', Clause 2.3(c), Clause 2.1.3 and Clause 15.10. These clauses categorically records liability of the guarantors and right and claim of the banks to proceed against the guarantor and therefore, the contention of the Appellant that deed of guarantee cannot be enforced against the Corporate Debtor by the Respondent No. 1 is baseless. 46. The Respondent No. 1 also refuted the allegations regarding lack of privity of contract between the Respondent No. 1 and the Corporate Debtor and stated that it is a settled principals of law that a person for whose benefit the trust is created by a contract, the beneficiary (in present case the lenders) may enforc....
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....le Supreme Court of India delivered in the case of Vidharbha Industries Power Limited Vs. Axis Bank Limited passed in Civil Appeal No. 4623 of 2021 and stated that Vidharbha was an electricity company having huge receivable of thousands of crores whereas the financial health and viability of the Corporate Debtor is extremely low and unviable to service outstanding debt of Rs. 28,82,84,667/- and hence the Adjudicating Authority correctly passed the Impugned Order for CIRP of the Corporate Debtor. 53. Concluding his arguments, the Respondent No. 1 requested this Appellate tribunal to dismiss the appeal with exemplary cost. Finding 54. The plea taken by the Appellant can be categorised into the following categories:- (i) The deed of guarantee dated 10.06.2016 to be treated void in view of Section 186 of the Companies Act, 2013. (ii) Lack of privity of contract between the Respondent No. 1 and the Corporate Debtor. (iii) Only trusteeship could have initiated the application under Section 7 of the Code against the Corporate Debtor and not the lender/ Respondent No. 1. (iv) The Respondent No. 1 could not have initiated the action of its own of....
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.... ➢ It is noted that deed of guarantee was given on 10.06.2016 on the financial facilities taken by the principal borrowers i.e. M/s B.P. Food Products Private Limited which is owned by the Appellant's own son. ➢ In such circumstances, it is clearly established that both the principal borrower and the Corporate Debtor are family owned group companies which are owned and controlled by the same set of family member. ➢ In this background, it will be travesty of justice to even consider the arguments of the Appellant to treat the deed of guarantee as void just in order to avoid the financial obligations towards the consortium of lenders. In any case we also observe that at the best the Corporate Debtor was liable for punishment under Section 186 (13) of the Companies Act, 2013 and the Corporate Debtor is not entitled for any illegal enrichment for its own illegal and malafide acting. ➢ In view of this we are unable to accept the intentions of the Appellant on this point. (II) Lack of privity of contract between the Respondent No. 1 and the Corporate Debtor. ➢ As regard lack of privity of contracts, ....
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....ence, it is very clear that all these agreements were executed primarily to protect the financial interest of the lenders and significantly on the same date i.e., 10.06.2016. ➢ On the issue of the privity of contract, we note that the clause F of the deed of guarantee specifically provides that "the Security Trustee acting for the benefit of the IDBI Consortium has called upon the Guarantor to execute this Guarantee in favour of the Security Trustee in favour of the Banks." This makes it clear that security trustee was to act for the benefit of IDBI Consortium consisting of all four lenders. ➢ We also observe that when the trust is created for the benefit of the beneficiary parties party, such parties are no more strangers to the contract and can step in shoes, to pursue their legal remedies on their own rights. . ➢ We also keep in mind the fact that the lenders have already been protected and given their rights to pursue against the Promoters and the corporate guarantors as independent rights which does not get extinguished with the approval of resolution plan by the Adjudicating Authority as clearly stipulated in the Impugned Order.....
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....stee :- The relevant clauses of the Deed of Guarantee dated 10.06.2016 are as below : - ➢ After going through above clauses, it is clearly evident that the deed of guarantee and security trust agreement goes hand in hand which primarily provide financial security to the lenders for the credit facilities given to the principal borrower. ➢ These clauses which are in cross reference to each other, clearly records the rights of the lenders including rights to proceed against the guarantor. ➢ In this connection, we would also like to refer to the judgement renders by the Hon'ble supreme Court of India in the matter of M.C. Chacko vs. The State Bank of Travancore, 1969 (2) SCC 343: AIR 1970 Supreme Court 504, where in Para 9 which reads as under : "9. Under the English common law only a person who is a party to a contract can sue on it and that the law knows nothing of a right gained by a third party arising out of contract: Dunlop Pneumatic Tyre Co. Vs. Selfridge and Co.. It has however been recognized that where a trust is created by a contract, a beneficiary may enforce the rights which the trust so created has given him. The....
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....rate guarantor/ Corporate Debtor, they have been offering meagre settlement amount which started from Rs. 1 Crores vide their letter dated 28.12.2022 and finally offer only Rs. 1.85 on 14.06.2023 against the corporate guarantor of Rs. 181.29 Crores and the Respondent No. 1 has categorically been rejected by the Respondent No. 1. ➢ We also take into consideration the pleadings of the Respondent No. 1 that the financial health of the Corporate Debtor in no way can support the their liability and thus we find that Vidharbha (Supra) does not come to any help to the Corporate Debtor as corporate guarantor. ➢ In above analysis, it become clear that the principal borrower and the Corporate Debtor are group companies which are owned and controlled by the same set of close family members and relatives and the corporate guarantee of Rs. 181.29 Cores was duly given by the Corporate Debtor The appellant could not make any reasonable, legal and valid case to avoid such liability and the cases cited by them including of Rakshit Doshi (Supra) are clearly non applicable in the present appeal based on distinguishable facts of the cases. In the case of Rakshit Doshi (....
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....tutions providing credit facilities to the Borrower as per the terms and conditions under the Common Agreement. Fee shall mean fee(s)/remuneration payable to the Security Trustee by the Borrower as may be agreed between the Security Trustee and the Borrower. Initial Corpus shall have the same meaning as ascribed thereto in Section 2.2 hereof. Obligors shall mean the Borrower, the Sponsor and the Corporate Guarantor. B. P. Food Products Pvt. Ltd. 3. P. Food Products Pvt. Ltd. BPFPPL IDBI anager Director/anger د در رودررررررررر Formerly CR RSL The CAD BANK MCG बैंक of 19-139. लिमिट BHOPAL ITSL KESMA SBI रतीय 1920 Document 2 ررررررررررررر درود در 349 2.3 2.4 The Borrower hereby settles with the Security Trustee and the Security Trustee accepts from the Borrower, in trust a sum of Rs. 1000/- (Rupees One Thousand only) ("Initial Corpus") for the benefit of the Lender, subject to the terms and conditions containe....
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....rms acceptable to the Lenders; B. P. Food Products Pvt. Ltd. Trusk आई बैं זער טן×ררר 37415 लिमिटेड to * BREPRI tor/Mayor RBL The Rothake CAD Lid IDBI KMBL KOTAR मिटेड * BHOPAL SBI keita Mist 1920 6 Document 3 ررررررر 356 2.10 2.11 2.12 2.13 2.14 Investments Save as otherwise provided in the Financing Documents, all monies which are received by the Security Trustee in its capacity as such under any of the Financing Documents or otherwise, may be invested by the Security Trustee in the name of or under the control of the Security. Trustee as per the approval of and for such period as the Lenders may determine. Provided that if the Lenders so instruct, such investments shall be liquidated and distributed in accordance with the terms of the relevant Financing Documents. Section 20 of the Indian Trust Act, 1882 shall not be applicable to the aforesaid investments. Continuing Liability of the Borrower Notwithstanding anything ....
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....e Borrower has approached the Banks and the Banks have agreed to renew the Existing WC Facilities/ Term Loan and extend certain additional credit facilities, which are collectively listed at First Schedule hereto (collectively referred to as the "Credit Facilities") on the terms and conditions contained in the Letters of Sanction (defined hereunder) and the Joint Working Capital Facility Agreement/ Joint Rupee Term Loan Agreement dated June 10,2016entered into amongst the Borrower and the IDBI Consortium [ Comprising of IDBI Bank as Lead Bank, State Bank of India, RBL Bank Ltd [ Formerly: The Ratnakar Bank Ltd] & Kotak Mahindra Bank Ltd as member Bank] (hereinafter referred to as the " Joint Working Capital Facility Agreement/Joint Rupee Term Loan Agreement"). E. One of the conditions of the Joint Working Capital Facility Agreement/ Joint Rupee Term Loan Agreement/ Term Loan Agreement is that the WC Facilities/ Term Loan together with payment of all interest, commission, additional interest, liquidated damages, premium on prepayment, reimbursement of all costs, charges and expenses and all other obligations payable b....
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....ther at stated maturity, upon acceleration or otherwise), or in B.P. Bansal Anritech Dut I w Document 5 و دود دود 410 9. 11. 12. 13. The Security Trustee shall have full liberty, without notice to the Guarantor and without in any way affecting this guarantee, to exeroise at any time and in any manner any power or powers reserved to the Security Trustee/Banks under the Joint Working Capital Facility Agreement/ Joint Rupee Term Loan Agreement, to enforce or forbear to enforce payment of the WC Facilities/ Term Loan or any part thereof or interest or other monies due to the Banks from the Borrower or any of the remedies or securities available to the Security Trustee, to enter into any composition or compound with or to grant time or any other indulgence or WC Facilities/ Term Loan to the Borrower and the Guarantor shall not be released by the exercise by the Security Trustee of their liberty in regard to the matters referred to above or by any act or omission on the part of the Security Trustee or by any other matter or thing whatsoever which under the law relating to sureties woul....
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....orce and effect notwithstanding any arrangement which may be reached between the Security Trustee and the other Guarantor/s, if any, or notwithstanding the release of that other or others from liability and notwithstanding that any time hereafter the other guarantor/s may cease for any reason whatsoever to be liable to the Security Trustee, the Security Trustee shall be at liberty to require the performance by the Guarantor of their obligations hereunder to the same extent in all respects as if the Guarantor had at all times been solely liable to perform the said obligations. C C c c c c c c c c r Director/Manager Usha Bahad Document 6 درررررررررررررر رررررر 14. 411 To give effect to this Guarantee, the Guarantor hereby agrees and gives his consent that the Security Trustee/Banks may act as though the Quarantor were the principal debtors to the Banks 15. 16. 17. The Guarantor hereby declare and agree that it has not received and shall not, without the prior consent in writing of the Security Trustee receive any security, fee or c....