TaxTMI 
TaxTMI 
TaxTMI 
2024 (4) TMI 539
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....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 against the said financial facilities, certain secur....
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....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 Corporate Debtor. The Appellant also submitted that such corporate guaran....
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....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 the Appellant that in absence of valid event of default, the Respondent No. 1 could not invoke the corporate guarantee ....
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....pellant 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 earlier. The Appellant further alleged that the Respondent No. 1 is under immense pressure from the other three lenders of the Consortium....
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.... 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 Authority dismissed of the objections taken by the Promoters and the CIRP was admitted on 01.12.2022 almost after four years of filing Section 7 appli....
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.... 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 enforced rights where the trust has been created for their benefits. 47. The Respondent No. 1 also cited the judgment of this Appellate Tribunal given in the case of Nar....
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....s 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 filing Section 7 application without the formal meeting held with other lenders and their consent and authorisation. (v) Financial viability of the Corporate Debtor and status of going concern based on the j....
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....hed 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, we have to understand the context in which the deed of guarantee has been executed through independent trusteeship, in the present case through IDBI Trusteeship Services Limited (in short 'Trusteeship'). ➢ Normally for huge funding, the banks join hands and form a consortium of lenders, like in the present ....
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....BI 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. ➢ Through several judgments of the Hon'ble Supreme Court and this Appellate Tribunal, the co-existence of the liability of the corporate guarantors and the principal borrower has been established. ➢ In this regard, the judgment has been rendered by the Hon'ble Delhi High Court in the case of Madhav Trading Company vs. Union of India and others, ILR (1978) 2 D....
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....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 basis of that rule is that though he is not a party to the contract his rights are equitable and not contractual..." (Emphasis Supplied) ➢ Thus the lender is entitled to initiate and file application under Section 7 of the Code despite they have been engaged trusteeship. We also take into consideration relevant para in the matter of Naresh Kumar Aggarwal (Supra), which reads as under :- "13. Learned counsel for the Appellant further submits that the State Bank of India c....