TaxTMI 
TaxTMI 
TaxTMI 
2024 (7) TMI 388
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....ary to be noticed for deciding this appeal are: (i) ICICI Bank has advanced Rs.100 Crore to Ushdev International Ltd, Principal Borrow, by way of two bilateral non-fund based facilities of INR 50 Crore each. The above two bilateral non-fund based facilities were advanced by Credit Agreement Letter dated 24.12.2014 and 14.10.2015. (ii) A Deed of Guarantee was executed by the Corporate Debtor - Ushdev Engitech Ltd. on 10.08.2016 for securing the above credit facility extended to the Principal Borrower. (iii) The Principal Borrower committed default and account of the Principal Borrow was declared as NPA in December, 2016. (iv) On 16.10.2017, Corporate Guarantee of Corporate Debtor was also invoked and the Corporate Debtor was asked to make payment within 5 days. (v) No payment having been made by the Corporate Debtor, a Section 7 application was filed by the ICICI Bank against the Corporate Debtor, who was the Corporate Guarantor, on which Company Petition (IB) 119 of 2021 was registered. (vi) The Corporate Debtor filed its reply in the Section 7 application. Against the Principal Borrower - Ushdev International Ltd. CIRP was initiated by order dated 14.05.2018. Revised R....
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....able the Financial Creditor to initiate or continue any proceeding under Section 7 against the Corporate Guarantor. Under the Resolution Plan of the Principal Borrower, after payment to the Financial Creditor, the balance debt was converted into non-convertible redeemable preferential shares. Thus, the entire debt having been taken care for and dealt with in the Resolution Plan of the Principal Borrower, Section 7 application filed by the ICICI Bank was not maintainable. Learned counsel for the Appellant submits that in view of the entire debt of the Principal Borrower being discharged by the approval of the Resolution Plan, under Section 134 of the Contract Act, the Corporate Guarantor shall stand discharged. It is submitted that thus there was no debt left on which Section 7 application could have been pursued by the ICICI Bank. Appellant has also filed an Additional Affidavit by which another ground was raised in support of the appeal namely that under Clause 33 of the Corporate Guarantee dated 10.08.2016 the liability of the Corporate Guarantor was not to exceed Rs.2,180 million and further in event the outstanding of borrower is less than aggregate of Rs.2,180 million, the gua....
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....duce the debt of the Principal Borrower below INR 218 Crores. Under the Principal Borrower's plan, no payments have been received and debt is more than Rs.218 Crores by including the preference shares given. Thus, there is no applicability of Clause 33 and the Corporate Debtor cannot claim that it is discharged from the debt. 5. Learned counsel for the parties have also referred to and relied on various judgments of this Tribunal, High Courts and the Hon'ble Supreme Court which we shall refer to while considering the submissions in detail. Written Submissions have also been filed by both the parties. 6. The first submission of the Appellant which need consideration is the effect of approval of Resolution Plan in the CIRP of the Principal Borrower on the guarantee which was given by the Corporate Debtor to ICICI Bank dated 10.08.2016. As noted above, the Resolution Plan in the CIRP of the Principal Borrower was approved by the Adjudicating Authority on 03.02.2022. ICICI Bank, the Financial Creditor of the Principal Borrower has also filed an application for clarification before the Adjudicating Authority seeking specific clarification as to whether after approval of the plan secur....
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....he Company being zero dividend and non-cumulative in nature at their face value. The Unpaid Debt shall be converted into the New Preference Shares as per the detailed terms set out in Schedule V simultaneously with the payment of the final tranche of INR 27 Crore (which shall be payable by the Resolution Applicant on or before the 120th day from the closing date). Subject to the Applicable Laws, the memorandum of association and the articles of association of the Company, the New Preference Shares, which shall be issued to the Financial Creditors upon conversion of the Unpaid Debt, shall not have rights to receive any dividends and/or voting rights of any nature whatsoever. The New Preference Shares shall not have any rights to appoint director on the board of the Corporate Debtor. The detailed terms of such New Preference Shares are set out in Schedule XII. Further, the rights and obligations of the New Preference Shares shall be governed by the memorandum of association and the articles of association of the Company as well as the agreements, if any, mas may be entered into by the Resolution Applicant and the Financial Creditors. Upon approval of the Resolution Plan by the Adjudi....
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....arising in future, and all such liability shall be waived in entirety, either pursuant to a right of subrogation under law or otherwise, for any amounts or obligations paid or discharged by the Promoters or any third party pursuant to any guarantee or surety given by such Promoters or third party on or before the Closing Date to secure the obligations of the Company or to any creditor of the Company. Furthermore, it is hereby clarified that upon approval of the Resolution Plan by the Adjudicating Authority, no further consent of any creditor (Financial Creditor or otherwise) shall be required to implement the Resolution Plan." 14. Now we may notice the Judgment of the Adjudicating Authority passed on 03.02.2022 approving the Resolution Plan. The Adjudicating Authority under the heading 'Reliefs, Concessions and Dispensations' passed following Order: "With regard reliefs, concessions and waivers as sought by the Resolution Applicant, this Bench orders that the reliefs and concessions are guaranteed as per the judgment of the Hon'ble Supreme Court in Ghanshyam Mishra and Sons Vs. Edelweiss Asset Reconstruction Company Limited, where at para 95(i) it was held that once a resolutio....
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....approve the said resolution plan, hence the approval of the resolution plan ipso facto discharge the enforcement of excluded securities. When there is no debt which is realisable there is no question of any enforcement thereof. The applicant being dissenting Financial Creditor has opted to choose out of the plan but will be entitled to the rights available to the dissenting Financial Creditor as per Section 53 of the Code." 16. The view which was taken by the Adjudicating Authority both in the Order dated 03.02.2022 approving the Resolution Plan and Clarification Order was that in view of the fact that unpaid debt shall stand converted into non-convertible redeemable preference share hence the excluded securities are no longer enforceable. The Adjudicating Authority held that excluded securities are subsumed under Clause 3.3.(iii). The Adjudicating Authority obviously referred to Paragraph 3.3. (e) (H) which provided that balance Financial Debt forming part of the Admitted Debt shall stand converted into non-convertible redeemable preference shares of the company which shall be issued to the Financial Creditors upon conversion of the unpaid debt. The above provision in the Plan f....
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....fined under the resolution plan'. Company Appeal (AT) Ins. No. 199-200 of 2022 are also allowed by deleting the observation in paragraph 29 and paragraph 30* of the Impugned order to the effect that 'Resolution Plan ipso facto discharge the enforcement of excluded securities'. The third prayer in I.A. No. 1799/MB/C-II/2021 filed by the ICICI Bank Limited seeking conversion of dissenting vote to assenting vote to the Resolution Plan is also allowed. Parties shall bear their own costs." 8. The judgment of this Tribunal clearly conclude that excluded securities including guarantee dated 10.08.2016 given by the Corporate Debtor to ICICI Bank shall continue and ICICI Bank can enforce the securities despite approval of Resolution Plan. 9. Learned counsel for the Respondent has also relied on judgment of this Tribunal in "Company Appeal (AT) (Ins.) No.975 of 2022, UV Asset Reconstruction Company Limited vs. Electrosteel Castings Limited". In the above case also one of the question which came for consideration was as to whether after approval of the Resolution Plan of the Principal Borrower, securities became unenforceable or not. One of the question, Question No.9 (II) framed in the cas....
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....ned that any rights against any third party shall not be extinguished. It is relevant to extract following relevant part of sub-clause (ix) : "... Furthermore, the Company shall stand discharged of any default or event of default under any loan documents or other financing agreements or arrangements (including any side letter, letter of comfort, letter of undertaking etc.) and all rights/ remedies of the creditors shall stand permanently extinguished except any rights against any third party (including the Existing Promoter) in relation to any portion of Unsustainable Debt secured or guaranteed by third parties. Furthermore, it is hereby clarified that upon approval of the Resolution Plan by the NCLT,...." 57. As noted above in Question (C), which was framed by the Adjudicating Authority was 'Whether the approval of the Resolution Plan has led to extinguishment and effacement of the entire debt of ESL (including the liability owed by the CD)...'. Although, the Adjudicating Authority has returned the finding in paragraph 15 as noted above that "approval of Resolution Plan has led to extinguishment and effacement of the entire debt of ESL", but no finding has been returned as to....
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.... debtor, creditor does any act inconsistent with the right of the surety, without surety's consent, surety is discharged." 14. Next judgment relied by learned counsel for the Appellant is judgment of Kerala High Court in "Aypunni Mani vs. Devassy Kochouseph & Ors., AIR 1966 Ker 203" where it was held that liability under Section 128 of the Indian Contract Act is coextensive with that of the principal debtor and if the liability of the principal debtor is scaled down, the liability of the surety is also to that extent reduced. 15. Judgment of Chancery Division in the case of "Perry vs National Provincial Bank of England, 1 Ch 464" has also been relied where it was held that if the debt is gone, then there can be no right in the Bank to sue the surety, and the security that is given must, as the result of the transaction, be exhausted. 16. Judgment of Orissa High Court in "Bhabani Shankar Patra vs. State Bank of India & Anr., AIR 1986 Ori 247" has been relied by the Appellant where it was held that by application of Section 139 of Indian Contract Act surety is discharged when creditor does any act which is inconsistent with the rights of the surety. Learned counsel for the App....
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.... submitted before the company judge and the principal borrower did not stand discharged because of operation of law. The decision of the Supreme Court in Maharashtra State Electricity Board, (1982) 3 SCC 358: AIR 1982 SC 1497: [1983] 53 Comp Cas 248, therefore, does not help the petitioner-bank. On the other hand, the submission of Sri R.P Agarwal, learned counsel for the respondents that the liability of the surety gets automatically terminated when liability of principal debtor is extinguished, deserves to be accepted." 17. Learned counsel for the Appellant has also placed reliance on judgment of the Bombay High Court in "Vinod S/o Chaganlal Daga vs. Sriram Chits Pvt. Ltd., (2018) 1 Mh. L.J. 575" where the Bombay High Court held that if suit is dismissed against the principal debtor, in view of Section 134 of the Contract Act, the sit abates against the sureties as well. 18. Another judgment relied by learned counsel for the Appellant is judgment of Hon'ble Supreme Court in the matter of "S. K. Gupta vs. K. P. Jain, (1979) 3 SCC 54" where Hon'ble Supreme Court in Para 12 of the judgment held that when the scheme is sanctioned it does not merely operate as agreement between the ....
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....nt as well as learned counsel appearing for the Respondent. Judgment of Hon'ble Supreme Court in "Lalit Kumar Jain vs. Union of India, (2021) 9 SCC 321" is the judgment which considered as to whether after approval of Resolution Plan, the Guarantor shall ipso facto be treated to be discharged from the liabilities. Hon'ble Supreme Court in the above case has clearly held that an involuntary act of the principal debtor leading to loss of security, would not absolve a guarantor of its liability. Supreme Court in judgment of Lalit Kumar Jain has relied on its earlier judgment in "Maharashtra State Electricity Board, Bombay vs. High Court Ernakulan, (1982) 3 SCC 358". Para 7 of the judgment of Maharashtra SEB was quoted in Para 122 of the judgment in Lalit Kumar Jain. In Para 122 of the judgment in Lalit Kumar Jain, the Hon'ble Supreme Court laid down following: "122. It is therefore, clear that the sanction of a resolution plan and finality imparted to it by Section 31 does not per se operate as a discharge of the guarantor's liability. As to the nature and extent of the liability, much would depend on the terms of the guarantee itself. However, this Court has indicated, time and....
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.... not ipso facto discharge a personal guarantor of a Corporate Debtor. In Para 125 of the judgment following was laid down: "125. In view of the above discussion, it is held that approval of a resolution plan does not ipso facto discharge a personal guarantor (of a corporate debtor) of her or his liabilities under the contract of guarantee. As held by this Court, the release or discharge of a principal borrower 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." 22. It is to be noted that the judgment of the Hon'ble Supreme Court in Lalit Kumar Jain has also been subsequently relied and reiterated by the Hon'ble Supreme Court. We may refer to judgment of Hon'ble Supreme Court in "Maitreya Doshi vs. Anand Rathi Global Finance Ltd. & Anr., 2022 SCC OnLine 1276" wherein in Para 36, Hon'ble Supreme Court has quoted the judgment of "Lalit Kumar Jain vs. Union of India" (supra) holding that the approval of a resolution plan in relation to a Corporate Debtor does not discharge the guarantor ....
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....tory/Director cannot take benefit of discharge obtained by the corporate debtor by operation of law under IBC." 24. Hon'ble Supreme Court further in "State Bank of India vs. V. Ramakrishnan, (2018) 17 SCC 394" noticing Section 31 (1) of the I&B Code held that 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. In Para 25 of judgment following has been held: "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....
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....pplicable, and the guarantee cannot be said to have been extinguished in terms of section 134 of the Contract Act simply because of the approval of the resolution plan, whereby the debt of the principle borrower is stated to have been resolved. The contention raised by the Corporate Debtor is, therefore, repelled." 27. We fully concur with the view taken by the Adjudicating Authority in Para 42 that Section 134 is not attracted in the facts of the present case. 28. Now we come to the submission of learned counsel for the Appellant relying on clause 33 of the Corporate Guarantee dated 10.08.2016. Clause 33 of the Corporate Guarantee dated 10.08.2016 is as follows : "Notwithstanding anything herein above stated our liability under this guarantee shall not exceed Rs.250 Million. This Guarantee will fall off in the event the outstanding of Borrower is less than or aggregate of Rs.2,180 Million out of Rs.2,500 Million (due as on date with ICICI Bank Limited under various facilities provided to the Borrower)." 29. Although no ground was taken in the appeal by the Appellant on basis of Clause 33, however, an Additional Affidavit was filed where this ground was sought to be raised. Th....
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....11. It is submitted that, as on the date of invocation of the Corporate Guarantee, i.e., 16 October 2017, the debt due and payable by the principal borrower, i.e., UIL was over INR 230 Crores. This is an admitted position as the said debt amount has never been disputed by UEL, neither at the time of invocation, nor in its pleadings before the Hon'ble NCLT Mumbai. Respondent No.1 craves leave to refer and rely upon documents in support of the same, if necessary. 12. Hence, it is submitted that when the UEL Guarantee was not challenged on the ground of Clause 33 as on the date of its invocation, it cannot be challenged now at this belated stage as an afterthought. 13. Further, as on the date of filing of the Insolvency Application against UEL, the debt due and payable by UIL to ICICI Bank was approximately INR 295 Crores. This is also reflected in the claim form filed by ICICI Bank with the RP of UIL which has been admitted by the RP and remains undisputed and is also a part of the record before this Hon'ble Appellate Tribunal. Hence, apart from invocation, even as on date of filing, Clause 33 of the UEL Guarantee was not applicable. Without prejudice, the UIL Plan does....