ICICI Bank Limited vs. CA Ritu Rastogi - Claim in Corporate Guarantor’s Insolvency , Creditor's Double-Dip.

NCLT (PB) New Delhi, (23.01.2018) in the matter of ICICI Bank Limited vs. CA Ritu Rastogi [ CA 366 (PB) /2017 connected with (IB)-102(PB) /2017]. Held that;

• The expression ‘Financial Debt’ has been defined to mean a debt along with interest disbursed against the consideration for the time value of money and includes, inter-alia ,the money borrowed against the payment of interest and many other transaction listed in sub-section 8(a) to 8(i) of section 5. It is relevant to point out that any amount of liability in respect of a guarantor for any of the items referred to (a to (h) is also regarded as financial debt.

• It is well settled that the right of the parties under section 128 of the the Indian Contract Act, 1872 are subject to the terms of the  agreement between the parties and hence the guarantor or the Resolution Professional are not entitled to raise objection which goes against the express terms of guarantee agreement duly executed between the Financial Creditor and ESSL, Corporate Debtor.

 

Facts of the case; In different matters, CIRP was going on against the Principal Debtor as well as the Corporate Guarantor separately. ICICI Bank filed its claim with RP of the Principal Debtor as well as with the RP of the Corporate Guarantor (both). RP of the Corporate Guarantor rejected the claim of ICICI Bank since the same had already been admitted by RP of the Principal Debtor and if such claim is admitted, then the recovery amount may exceed the total claimed amount of ICICI Bank which may be prejudicial to others. However, NCLT allowed the said claim since it falls within the definition of financial debt and RP is not allowed to raise objection contrary to the provisions of the guarantee agreement.

 

Excerpts of the Order; 

“# 18.  ……..  A perusal of the aforesaid provisions would show that the expression ‘Financial Creditor’  it means any person to whom inter-alia the Financial Debt is owed. The expression ‘Financial Debt’ has been defined to mean a debt along with interest disbursed against the consideration for the time value of money and includes, inter-alia ,the money borrowed against the payment of interest and many other transaction listed in sub-section 8(a) to 8(i) of section 5. It is relevant to point out that any amount of liability in respect of a guarantor for any of the items referred to (a to (h) is also regarded as financial debt.

 

# 19. In the present case Edu Comp Solution - Principal Borrower has enjoyed the loan facility advanced by the applicant - ICICI Bank Ltd. The ESSL - Corporate Debtor has furnished Guarantee. Therefore it follows that the applicant - ICICI Bank has to be regarded as Financial Creditor.

 

# 20. The ideal situation would have been if one consolidated  Corporate Insolvency Resolution Process had been initiated against the Edu Comp Solution by impleading all the Financial Creditors and Guarantors like ESSL - Corporate Debtor as a party respondent. However Edu Comp Solution has invoked section 10 of the Code  inviting Insolvency Process and it is now facing the same. It creates an unenviable  and paradoxical situation because there are two Resolution Professionals and two Committees of Creditors. In  the situation in hand the best course would have been that both the Resolution Professionals  could coordinate and as far as  possible could have  held the meetings of committee of creditors together. However even that is not possible because the members of CoC in both processes are different although some of the members are common. Therefore that course also does not commend itself to us.

 

# 21. The objection raised on behalf of the Resolution Professional that the applicant - ICICI Bank has no privity of contract would not be acceptable for the simple reason that the corporate guarantee dated 03.06.2015 (Annexure - A)  clearly shows that SBI in its capacity as Surety Trustee was acting for the benefit of CDR Lenders as detailed in Schedule - 1. In Schedule -1 the name of ICICI Bank figures at No. 2. It is further evident from the perusal of clause19, that the liability of the guarantor was not to be affected and in accordance with clause 12, the lender is entitled to act as if the guarantor was the principal debtor of the lender. A reference to clause 33 of the Corporate Guarantee, list the waiver of defenses and the same reads as under;

• “33. The liability of the guarantor under this guarantee shall not be prejudiced, affected or diminished by any act, omission, circumstances, matter or thing which but for this provision might operate to reduce, release, prejudice or otherwise exonerate the guarantor from any of its obligations hereunder in whole or in part including, without limitation and whether or not known to the guarantor;

• (a) Any time or waiver granted to the borrower or any other person;

• (b) The taking variation, compromise, renewal or release refusal neglect to perfect or enforce any right, remedy or security against the borrower or any other person, to the extent as permitted under this guarantee;

• (c) Any legal limitation, disability, incapacity, lack of power authority or legal personality of any person or other circumstances relating to the borrower or the death, bankruptcy, insolvency, liquidation or similar proceedings or change in the name, ownership, constitution, members or status of the borrower, another guarantor or any other person;

• (d) An irregularity with respect to or enforce-ability, or of obligations of any other person or security, to be intended that the guarantor obligation hereunder shall remain in full force and this guarantee be construed accordingly as if there were no such irregularity, un-enforceability, illegality, or frustration.

 

# 22. In view of the above the objections raised by the RP would not merit any detailed consideration and the same are hereby rejected, The aforesaid detailed facts would further show that the parties have provided for the course to be adopted in the guarantee agreement in case of default by the principal borrower in relation to guarantee. It is well settled that the right of the parties under section 128 of the the Indian Contract Act, 1872 are subject to the terms of the  agreement between the parties and hence the guarantor or the Resolution Professional are not entitled to raise objection which goes against the express terms of guarantee agreement duly executed between the Financial Creditor and ESSL, Corporate Debtor. Therefore on that count also the objections raised by the RP are liable to be rejected.

 

# 23. As a sequel to the above discussion we dispose of this application as per the following directions;

1. The applicant being a financial creditor has to be given its due place in the Committee of Creditors by permitting it to join the Corporate Insolvency Resolution Process initiated in the matter of ESSL - Corporate Debtor.

2. The applicant shall be entitled to have its voting rights determined as per its proportion.

 

# 24. The application stands disposed of.”

 

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