TaxTMI 
TaxTMI 
2025 (2) TMI 109
X X X X Extracts X X X X
X X X X Extracts X X X X
....Professional of the Corporate Debtor and Respondent No. 2 herein. 3. The Appellant submitted that the Impugned Order has led to a gross miscarriage of justice, as it failed to recognize that the Petition filed by the Respondent No. 1 under Section 95 of the Code was barred by limitation. Furthermore, there was no privity of contract between the Appellant and State Bank of India ('SBI'), since the Personal Guarantee dated 03.06.2015 was executed solely between the Appellant and SBICAP. Additionally, the Appellant asserted that the Impugned Order disregarded the critical fact that if the auction of the shares of The Learning.com had been conducted in a fair, transparent, and unbiased manner, the principal borrower, Educomp Solution Limited ('ESL') being the major shareholder of Educomp Asia would have generated substantial revenues. This revenue could have satisfied the claims of all lenders including Respondent No. 1 /SBI, thereby rendering the proceedings before the Adjudicating Authority unnecessary. 4. The Appellant submitted that ESL was incorporated in 1994 as the flagship company of the Educomp Group within the emerging Education Technology sector. The Appellant, an ex-d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he consortium members were obligated to extend a Capex LC limit of Rs. 108,49,00,000/- to ESL which was not honoured by the Lenders leading to further financial crises to ESL. It is brought to our notice that the relevant clause, Clause 2.15.1 of the MRA, which reads as under: "2.15.1. the Parties agree and understand that the Borrower has changed its business model from 1 April, 2013 ('New Business Model'). Pursuant to the New Business Model, the borrower is selling its Smart Classes Products through third party i.e., Edu Smart Services Private Limited ("Outright Sales"). Pursuant to the New Business Mode, the Borrower would recognize the sale and expenses towards hardware in the same year for the contracts entered on Outright Sale basis, whereas for the contracts entered on Build Own Operate (BOO) basis, the Borrower would capitalize the assets created and book the revenue over a period of the contract (typically 3 years). The borrower further agreed that gradually it shall increase the proportion of the Outright Sales in future and bring down the sales done on BOO basis. Similarly, for JCT business, the Borrower would incur Capex for the contracts entered on BOO bas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the CDR lenders. The Appellant highlighted that during this two-year period, the CDR lenders continued to violate the terms of the MRA, worsening the ESL's financial situation. 11. The Appellant stated that ESL was admitted into Corporate Insolvency Resolution Process ('CIRP') by an order dated 30.05.2017, issued by the Adjudicating Authority in CP(IB) No. 101(PB)/2017 following which, Respondent No. 1 /SBI was included in the CoC for ESL after the entirety of SBI's claim was accepted. 12. The Appellant submitted that Educomp Asia Pacific Pte Limited ('EAPPL'), ESL's step-down subsidiary, was placed into liquidation by an order of the High Court of Singapore. The Appellant explained that ESL, through EAPPL, acquired approximately 55% equity in the U.S.-based e-learning solutions company, 'The Learning Internet Inc' or 'Learning.com', after securing a loan facility of USD 20 million from State Bank of India, Singapore ('SBI Singapore'). This loan was further secured by a Corporate Guarantee issued by ESL in favor of SBI Singapore. Following ESL's admission into the CIRP, SBI Singapore became a member of the CoC. 13. The Appellant stat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as filed on 01.04.2021 by the Respondent No. 1 / SBI and thus both the Demand Notice and the application under Section 95 of the Code are time-barred. 17. The Appellant submitted that the Respondent No. 1 /SBI has failed to properly invoke the Personal Guarantee, which is in any case is an afterthought, as the purported letter of demand dated 22.06.2018, issued under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ('SARFAESI Act'), amounted to an invocation of the Personal Guarantee. The Appellant asserts that SBI incorrectly claims that the date of default was August 21, 2018, which cannot be valid as it falls after the declaration of the account as a NPA on 31.03.2013. 18. The Appellant submitted that the Respondent No. 1 /SBI is not a signatory to the Personal Guarantee dated 03.06.2015, and therefore, could not have invoked this guarantee against the Appellant. Furthermore, the invocation of the Personal Guarantee was executed in blatant disregard of its express terms, as Clause 9 of the guarantee explicitly prohibits lenders from enforcing it severally. The Appellant stated that even Clause....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cating that the enforcement cannot be applied to the Appellant alone without considering the other guarantor. The said Clause 9 does not permit the lenders to severally enforce the Personal Guarantee. 22. The Appellant stated that Clause 17 of the Personal Guarantee, mandates the issuance of a certificate by the Security Trustee, to be annexed with any application filed under Section 95 of the Code. However, the application submitted by Respondent No. 1 /SBI under Section 95 of the Code does not include such a certificate from the Security Trustee or the lenders, nor has the Security Trustee invoked the Personal Guarantee therefore action of Respondent No. 1/SBI is illegal. 23. The Appellant stated that a careful examination of the recitals and Clause 29 of the Personal Guarantee reveals that the rights to enforce the personal guarantee have been ceded to the Security Trustee. Specifically, Recital F states that "In order to create a joint guarantee for the Loans, the Security Trustee has called upon the Guarantors to execute, and the Guarantors have executed, this Guarantee in favor of the Security Trustee for the benefit of all Lenders." Additionally, Clause 29 clarifies th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....submitted that the Adjudicating Authority further directed that if the re-evaluated valuation of the shares exceeds USD 7.1 million, which is the amount for which the shares were sold on 03.09.2021, then the claim of SBI Singapore against ESL would be reduced accordingly. The Appellant contends that had the shares of Learning.com been sold at their correct valuation, ESL's entire debt would have been settled, leaving nothing to be recovered from the Appellant as Guarantor. 27. Concluding his arguments, the Appellant urged this Appellate Tribunal to dismiss the Impugned Order and allow his appeal. 28. Per contra, the Respondent denied all the averments made by the Appellant in the present appeal. 29. The Respondent No.1 submitted that the Corporate Debtor availed a range of credit facilities, which included Rupee Term Loans totalling Rs. 636.82 crores from existing term loan lenders, and working capital facilities, both fund-based and non-fund-based, amounting to Rs. 543.80 crores from working capital lenders. Additionally, the Corporate Debtor secured external commercial borrowings ('ECB') of Rs. 434 Crores from ECB lenders. The Corporate Debtor also acquired equipment....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al Guarantee and acknowledged its failure to pay the debt due. 33. The Respondent No.1 submitted that allegation of the Appellant that there exists no privity of contract between Respondent No. 1 and the Appellant, which precludes Respondent No. 1 from invoking the Guarantee executed by the Appellant and the security trustee, SBICAP Trustee Company Limited ("SBICAP") is far from truth. The entries in Form B (Notice of Demand) and Form C (Application) are specifically related to the filing of a Section 95 petition by a creditor. Importantly, there is no provision in the Code that prohibits a lender from filing a petition, even in cases where a security trustee has been appointed to hold the security interest. Therefore, the assertion that Respondent No. 1 cannot proceed based on the lack of direct contractual relationship with the Appellant is unfounded. 34. The Respondent No.1 submitted that the terms of the MRA and the Security Trustee Agreement (STA) clearly indicate that the security trustees are holding 'Security' not for their own benefit, but on behalf of and for the benefit of the Claimant/Lender. Consequently, the Lender has the right to enforce the security d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....No.1/SBI issued the notice demanding payment of the entire loan amount within 60 days of service on 23.08. 2018, the limitation period for the claim commenced on that date. Consequently, the Company Petition was filed within the applicable limitation period. This interpretation aligns with established legal principles regarding the commencement of limitation periods in insolvency proceedings, reinforcing the validity of the petition and the timely actions taken by SBI. 38. The Respondent No.1 submitted that the appellant's contention that the Notice of Demand dated 22.06.2018, under Section 13(2) of the SARFAESI Act is not an invocation of the personal guarantee is unfounded. Respondent No. 1 issued the Notice specifically against the Appellant, clearly referencing the Personal Guarantee dated 03.06.2015. The Notice explicitly states, "The said financial assistance is also secured by the personal guarantee of Sh. Shantanu Prakash & Sh. Jagdish Prakash & corporate guarantee of Edu Smart Services Pvt Limited for consortium advance." This unequivocal mention demonstrates that the personal guarantee was indeed invoked, thereby validating the present petition. 39. The Responde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der dated 31.05.2024 and Personal Insolvency Resolution Process ('PIRP') has been initiated against the Appellant who is the guarantor of the of the Corporate Debtor ESL. 44. We have already noted the facts from the pleadings of the Appellant and the Respondent herein above and therefore shall not repeat. The Impugned Order has been challenged by the Appellant based on the following grounds :- a) The application filed under Section 95 of the Code was barred by limitation. b) There was no privity of contract between Applicant/ SBI and Appellant/ personal guarantor. c) The Adjudicating Authority could not have passed the Impugned Order based on invocation of personal guarantee by 3rd party. d) The Appellant has also challenged on the ground that the debt itself has not been crystalised. e) The Impugned Order did not issue direction under Section 100 (2) of the Code regarding negotiations to be held in Appellant/ personal guarantor and the Creditor/ Respondent. f) The Impugned Order ignored the fact regarding under valued sale of shares in learning.com held by of Corporate Debtor subsidiary EAPPL leading to groups under recovery....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rustee Company Limited and the Respondent No. 1 was not signatory to personal guarantee as such the Respondent No. 1 could not have initiated Section 95 application. On this account, we note that concept of trusteeship is to act on behalf of the creditors or consortium of creditors. (ii) Thus, such trusteeship deeds are generally signed between the trust on behalf of the lenders and the personal/ corporate guarantor of the principal borrower. However, by its inherent nature and intent, the lenders or the Financial Creditors are the true beneficiaries of such deed of guarantee. (iii) We further note that Section 95 of the Code provides right to the creditors to file application to initiate PIRP. (iv) It has been pleaded that security trustee is merely holding security in favour of the creditor or consortium of creditors and therefore either the trust or creditors may file application under Section 95 of the Code. (v) The wording of Section 95(1) of the Code clearly stipulate that creditor may apply "either by himself or generally with other creditors". Therefore, the creditor i.e., Respondent No. 1 is within his right to initiate Section 95 applic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ss such action is brought to a close through consent terms or otherwise pursuant to Restructuring Documents." (Emphasis Supplied) (xi) This makes position very clear and give rights to the Lender/ Financial Creditor/ Respondent No. 1 herein to pursue its legal rights. (xii) We have noted that Guarantors has confirmed the existence of the existing guarantee given to the Existing Term Loan Lenders and Working Capital Lenders through the following :- 1.3.1 The Guarantors hereby irrevocably acknowledge and confirm the existing guarantee given by the guarantors to the Existing Term Loan Lenders and the Existing Working Capital Lenders and the amount of the Existing Term Loan outstanding to each of the Existing Term Loan Lenders and the amount of the Existing Working Capital Facilities of the Existing Working Capital Lenders and agrees to and acknowledges the reconstitution of the Existing Term Loans due to the Existing Term Loan Lenders and conversion of irregular portion of the Existing Working Capital Facilities due to the Existing Working Capital Lenders pursuant to the Approved CDR Package and the other Restructuring Documents." (Emphasis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecurity Trustee/Lenders shall have full liberty, without notice to the Guarantors and without in any way affecting this Guarantee, to exercise at any time and in any manner any power or powers reserved to the Lenders under the Restructuring Documents, to enforce or forbear to enforce payment of the Loans or any part thereof or interest or other monies due to the Lenders from the Borrower or any of the remedies or securities available to the Lenders, to enter into any composition or compound with or to grant time or any other indulgence or facility to the Borrower AND the Guarantors shall not be released by the exercise by the Security Trustee/ Lenders of its liberty in regard to the matters referred to above or by any act or omission on the part of the Security Trustee/the Lenders or by any other matter or thing whatsoever which under the law relating to sureties would but for this provision have the effect of so releasing the Guarantors and the Guarantors hereby waive in favour of the Security Trustee/the Lenders so far as may be necessary to give effect to any of the provisions of this Guarantee, all the surety ship and other rights which the Guarantors might otherwise be entitle....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of this Guarantee In any other court, tribunal or other appropriate forum, and all the other parties to this Guarantee hereby consent to that Jurisdiction." ( Emphasis Supplied ) (xviii) We hold that the Adjudicating Authority has rightly held in para 14 of the Impugned Order that merely because the trustee acted on behalf of Respondent No. l/SBI, it cannot be said that the beneficiary/creditor cannot enforce the Personal Guarantee executed by the Appellant. As can be seen from clause O of the MRA, SBICAP was appointed as Security Trustee in accordance with the terms of the Security Trustee Agreement dated 25.03.2014 for the purpose of holding the security interest for the benefit of the CDR lenders and non-CDR lenders. Thus, SBI had the locus to file the Company Petition. (xix) Thus, on this point, we do not find any merit and the pleadings of the Appellant on this account stand rejected. (d) The Appellant has also challenged on the ground that the debt itself has not been crystalised. (i) On this issue pleaded by the Appellant, we note that Section 95 of the Code has been initiated demanding payment of Rs. 532,99,88,089.76 with the dat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion to repay the demanded money by the Respondent No. 1/ SBI and whether he can offer any repayment plan even at this stage. The Appellant could not give any concrete reply, as such we do not find any substance that debtor/ appellant has not been offered an opportunity to offer the repayment plan and has suffered on this account. (f) The Impugned Order ignored the fact regarding under valued sale of shares of Corporate Debtor subsidiary in learning.com leading to gross under recovery for the principal borrower. (i) This subject of sale of shares of Learning. com/ The Learning network.com has already been challenged by SBI Singapore in connected Appeal bearing Comp. App. (AT) (Ins.) No. 1351 of 2023 and is before us. We have examined this issue in great detail and judgement is being pronounced in the separate judgement in this regard allowing the appeal of SBI Singapore and setting aside Para 27(a) and 27 (b) of the Impugned Order dated 25.08.2023 passed by the Adjudicating Authority in IA. No. 187/ND/2022 in Company Petition No. (IB)-101/(PB)/2017. (ii) As such, we do not find any merit on this ground in the present appeal. For purpose of brevity, we are ....