Nitin Chandrakant Naik Vs. Sanidhya Industries LLP - In Resolution Plan of Corporate Debtor provision relating to right of Financial Creditor to proceed against Personal Guarantor can be there, but enforcement of such right has to be as per provisions of law as discussed.

NCLAT (26.08.2021) in Nitin Chandrakant Naik Vs. Sanidhya Industries LLP  [Company Appeal (AT) (Insolvency) No. 257 of 2020 & 239 of 2021] held that; 

• Now, after portion of Part-III has been applied to Personal Guarantors of Corporate Debtor, one would have to resort to those provisions under IBC if Personal Guarantors of Corporate Debtor are to be proceeded against. In Resolution Plan of Corporate Debtor provision relating to right of Financial Creditor to proceed against Personal Guarantor can be there, but enforcement of such right has to be as per provisions of law as discussed.

•  . . there have been material irregularities in exercise of powers by the Adjudicating Authority when it directed the Appellants (in para 26 of the impugned order (referred supra)), that the owners of the premises as mentioned in the judgment shall enter into Tripartite Agreements for transfer of the premises (as mentioned in para 18 of impugned order). In fact, if para 18 is seen, after describing the properties in the chart there is also portion added which says that the Financial Creditors shall be at liberty to proceed against the properties of the Promoters erstwhile Directors/ Guarantors “other than those mentioned above to recover their balance”. This, in the Resolution Plan would be blank cheque given to proceed even with regard to any other property also of the Personal Guarantors. In our view, without resorting to appropriate proceedings against the Personal Guarantors of Corporate Debtor this is irregular exercise of powers.

Excerpts of the order;

# 1. The Appellants, Promoter and Suspended Directors of the Corporate Debtor- ‘Simrut Foods & Hospitality Private Limited’ have filed this Appeal against impugned order dated 13.11.2019 passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench) in M.A. No. 3439/2019 in CP No. 1973/ 2018. By the Impugned Order, the Adjudicating Authority allowed the Application filed by Respondent No.3- Resolution Professional seeking approval of the Resolution Plan approved by the Committee of Creditors which plan was submitted by Respondent No.1-‘Sanidhya Industries LLP’. Aggrieved by the approval of the Resolution Plan, the Appellants have filed this Appeal mainly on the ground that the Resolution Plan has provision to transfer personal properties of the Appellants who had given their personal properties as security in favour of the Corporate Debtor, whom Corporate Debtor took loan.

 

# 2. The Appeal claims and it is argued on behalf of the Appellants that the Resolution Plan approved made provision of transfer of personal properties of the Appellants. It is claimed that the personal properties of the Shareholders/ Directors cannot form part of the Resolution Plan under Regulation 37 of the CIRP Regulations. Resolution Plan has to be with respect to the property of the Corporate Debtor and cannot enforce action against the properties of Shareholders/ Directors or Guarantors without proceeding against them. If the Creditor desires the Creditor has to proceed against the Guarantor under SARFAESI Act, 2002, Indian Contract Act, 1972 or the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, which proceedings could have been filed before the DRT as Part III of the Insolvency and Bankruptcy Code, 2016 (“IBC” for short) which has not yet been notified. The Appellants alleged that the Information Memorandum published by Respondent No.3-Resolution Professional did not show the personal properties of the Appellants as properties of the Corporate Debtor. . . . 

 

# 4. Before proceeding further, it needs to be noted here that in this matter the Resolution Plan was approved on 13.11.2019 and Section 2(e) and provisions of Part-III of IBC came to be notified on 15.11.2019 enforcing Part-III of IBC to limited extent of making it possible to enforce Resolution relating to personal Guarantors of the Corporate Debtor. Notification was issued by Government and a judgment was passed by Hon’ble Supreme Court in the matter of ‘Lalit Kumar Jain vs. Union of India & Ors.’-[Transferred Case (Civil) No. 245/2020] in this context. In the present matter thus, the disputes raised are on the basis of as to how the law stood (before making Part III of IBC applicable to Personal Guarantors of Corporate Debtor) at the time of approval of Resolution Plan by the Committee of Creditors and then by the Adjudicating Authority.

 

# 7. Respondent Nos. 4 and 5, the Financial Creditors have also filed reply and it is argued by these Respondents that the Appellants are the Promoters of the Corporate Debtor and they had mortgaged the subject properties to these Respondents vide Mortgaged Deed dated 20th October, 2014. It is claimed that the Appellants had executed personal guarantees in order to secure the advances given to the Corporate Debtor and that the properties concerned are commercial in nature (The documents show the properties on personal names of Appellants- See Schedule of Annexure-B- Joint Mortgage Deed dated 20.10.2014). It is claimed that these Respondents had proceeded to take action under Section 13(2) of the SARFAESI Act on 17.09.2018 and 28.07.2017 respectively and that the possession was taken by notice dated 19.02.2018 under the SARFAESI Act. The CIRP got initiated on 03.09.2018. Para 4 of Reply Diary No.23074 shows that these Respondents got the secured assets valued on 08.02.2019. These Respondent Nos.4 and 5 had 91.31% voting shares in the CoC. These Respondents are relying on para 22 of the judgment in the matter of “State Bank of India v. V. Ramakrishnan & Anr.” [Civil Appeal No.3595 of 2018] passed by the Hon’ble Supreme Court on 14th August, 2018. The said paragraph reads as under:-

• “22. 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 6 contained in the Rules and Regulation 36(2) referred to above, require information as to personal guarantees that have been given in relation to the debts of the corporate debtor. Far from supporting the stand of the Respondents, it is clear that in point of fact, Section 31 is one more factor in favour of a personal guarantor having to pay for debts due without any moratorium applying to save him.”

 

# 8. These Respondents lay stress on the observations of the Hon’ble Supreme Court that the Resolution Plan ‘may well include provisions as to payments to be made by such guarantor’. On such basis, these Respondents claim that the Adjudicating Authority rightly approved the Resolution Plan and that the Appeal should be dismissed.

 

# 10. Thereafter, the Adjudicating Authority referred to Sections 30 and 31 of the IBC as well as Regulations 38 & 39 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulation, 2016’ (“CIRP Regulations” for short) and concluded in Para 21 that mandatory contents of Resolution Plan have been complied with, inter alia Adjudicating Authority went on to give direction in Para 26 of the impugned order as under:-

• “26. It is directed that Mrs. Megha Nitin Naik and Mr. Nitin Chandrakant Naik, the owners of the premises as mentioned above and the Corporate Debtor, shall enter into Tripartite Agreements (with the Financial Creditors), for transfer of the premises (as mentioned in paragraph 18 of this Order) to the Resolution Applicant in compliance with the decision of CoC.”

 

# 13. We have heard learned Counsel for the parties. When CIRP is initiated, in the first step, Interim Resolution Professional (IRP) is required under Section 18(1) to collect all information relating to the assets, finances and operations of the Corporate Debtor for determining the financial position of the Corporate Debtor. He has to make a list of assets and liabilities of Corporate Debtor. Regulation 36 of the CIRP Regulations provides as to what is required to be incorporated in the Information Memorandum which is to be issued by the Resolution Professional. Here also the Information Memorandum requires including details of the assets and liabilities of the Corporate Debtor as per Regulation 36(2) (a). Sub-clause (f) of Regulation 36(2) provides that the Information Memorandum should give details of guarantees that have been given in relation to the debts of the Corporate Debtor by other persons, specifying which of the guarantors is a related party. Thus reference to details of Guarantees given by Related Party has to be there. That reference does not make property of Guarantor a property of Corporate Debtor for which Section 36(2) (a) is there.

 

# 20. The Hon’ble Supreme Court observed that Section 31 is one more factor in favour of the fact that a personal guarantor is required to pay for debts due without any moratorium applying to save him. What is clear is that Section 31 does not absolve the personal guarantor from liability. But then the Respondents are trying to rely on para 22 of the judgment of the Hon’ble Supreme Court to say that in the Resolution Plan itself there can be provision to move against personal guarantor. We do not agree with these submissions. It appears Resolution Plan can have jurisdiction as to right of payment to be received from Personal Guarantor. To us, it does not appear that the Judgment lays down that in the Resolution Plan of the Corporate Debtor itself provision could be made to consume property of Personal Guarantor without recourse to appropriate proceedings which were, earlier as per Acts then applicable (and now without recourse to Part III of IBC). Before Part-III was enforced against personal guarantors of the Corporate Debtor, the provisions under which one could move against the personal guarantors are as mentioned by the Hon’ble Supreme Court in para 15 of the judgment in the matter of “State Bank of India v. V. Ramakrishnan & Anr.”. After coming into force of Part-III, now one would have to proceed as per Chapter III of Part-III of IBC. If the arguments of the Respondents were to be accepted, there would have been no need of the earlier provision being maintained. After Part-III is enforced there would be no need of Part-III if properties of the Personal Guarantors could be simply included in the Resolution Plan and disposed directing them to sign the transfer deed as is being done in the present matter.

 

# 23. Going back to the judgment in the matter of “State Bank of India v. V. Ramakrishnan & Anr.”, if Moratorium under Section 14 of the IBC during CIRP did not apply to Personal Guarantors of the Corporate Debtor, personal properties of the Corporate Debtor cannot be realised by sale/ transfer etc. in the CIRP of the Corporate Debtor without resorting to proceeding before appropriate authority/ Court under the existing enactment before portion of Part-III has been applied to the Personal Guarantors of Corporate Debtor. Now, after portion of Part-III has been applied to Personal Guarantors of Corporate Debtor, one would have to resort to those provisions under IBC if Personal Guarantors of Corporate Debtor are to be proceeded against. In Resolution Plan of Corporate Debtor provision relating to right of Financial Creditor to proceed against Personal Guarantor can be there, but enforcement of such right has to be as per provisions of law as discussed.

 

# 24. For the above reasons, we hold under Section 61(3) of the IBC that the Resolution Plan as approved by the Adjudicating Authority is in contravention of the provisions of law as discussed above and there have been material irregularities in exercise of powers by the Adjudicating Authority when it directed the Appellants (in para 26 of the impugned order (referred supra)), that the owners of the premises as mentioned in the judgment shall enter into Tripartite Agreements for transfer of the premises (as mentioned in para 18 of impugned order). In fact, if para 18 is seen, after describing the properties in the chart there is also portion added which says that the Financial Creditors shall be at liberty to proceed against the properties of the Promoters erstwhile Directors/ Guarantors “other than those mentioned above to recover their balance”. This, in the Resolution Plan would be blank cheque given to proceed even with regard to any other property also of the Personal Guarantors. In our view, without resorting to appropriate proceedings against the Personal Guarantors of Corporate Debtor this is irregular exercise of powers.

 

# 25. For the above reasons, we pass the following order:-

ORDER

The Appeal is allowed. The impugned order is quashed. The Resolution Plan approved by the Adjudicating Authority is rejected. All actions taken in consequence of the impugned order approving the Resolution Plan shall stand set aside. As the Insolvency Resolution Process period under Section 12 of the IBC is already over, the matter is remitted back to the Adjudicating Authority to pass appropriate order of liquidation under Section 33 of the IBC.

 

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