NCLAT (2021.03.04) in S.S. Natural Resources Private Limited Vs.Ramsarup Industries Limited & Ors [Company Appeal (AT) (Insolvency) Nos.995, 988, 1039, 1124, 1125, 1159, 1242 of 2019 & 468 of 2020] dealt with the question of disposal of the property (land on which the factory of corporate debtor is situated) of the corporate guarantor as part of resolution plan of the corporate debtor.
Excerpts of the order;
# 145. The Appellant further contends that the Adjudicating Authority has failed to appreciate that the Resolution Plan is conditional and contingent in as much as the Resolution Applicant had sought a direction to the effect that upon the Resolution Plan being sanctioned, the land in the Durgapur would be transferred in the name of the Resolution Applicant which cannot be allowed. Further, the land in the Durgapur not being a property of the Corporate Debtor and property belonged to a third party cannot be transferred by way of a Resolution Plan. As such, the Adjudicating Authority approval is conditional under which the property not belonging to the Corporate Debtor, whose ownership lies with the third-party stated to be transferred to the Resolution Applicant under the Resolution Plan.
# 146. The Appellant contends that Vanguard Credit And Holdings Private Limited is the owner of the land measuring 52.49 acres in Durgapur, West Bengal. The said property which is sought to be transferred by way of Resolution Plan does not belong to the Corporate Debtor but belongs to a third party, i.e. Appellant herein, which is ultimately a separate legal entity and even though Vanguard is a stranger to the Corporate Insolvency Resolution Process of the Corporate Debtor. The Resolution Applicant had sought approval from the Adjudicating Authority in regards to the transfer of the said property to the Corporate Debtor in respect of which the Resolution Plan is approved. The Appellant argued that the property which does not belong to the Corporate Debtor could not be transferred by way of a Resolution Plan.
# 147. The Adjudicating Authority failed to consider Section 18(1)(f) of the Code read with the explanation appended to it defines "assets". According to the explanation thereto, "assets does not include assets owned by the third party in possession of the Corporate Debtor or assets of any Indian or foreign subsidiary of the Corporate Debtor". Regulation 37 of the ‘CIRP’ Regulations, 2016, states that Resolution Plan can only contemplate the transfer of all or part of the assets of the Corporate Debtor to one or more persons on sale of all or part of the 'assets' whether or not subject to any security interest or not. It is further contended that the security interest means "security interest created in respect of an asset of the Corporate Debtor" and not security interest created by a separate legal entity or a third party on behalf of the Corporate Debtor. Regulation 37(d) provides for satisfaction or modification of any security interest created by the Corporate Debtor for its own assets and not of the assets belonging to third parties.
# 148. The Resolution Professional contended that the Appellant's property was mortgaged with the Banks/Financial Creditors. Thus, the Resolution Applicant is entitled to transfer the said premises by way of the Resolution Plan. In this context, it is relevant to mention that no possession has been taken under Section 13(4) of the SARFAESI Act, 2002 by any Financial Creditors regarding the Durgapur land. The Appellant has also challenged the notice under Section 13(2) of the SARFAESI Act, 2002 and proceedings under Section 17 of the SARFAESI Act, 2002, pending before DRT, Kolkata. If during the pendency of the proceedings under Section 17 of the SARFAESI Act, 2002 the said premises is transferred by way of Resolution Plan, the entire proceedings before the DRT would be rendered infructuous, especially when the creation of a mortgage and enforcement procedure thereof is under challenge, is under the exclusive jurisdiction of the DRT.
# 149. The Appellant further contends that the Adjudicating Authority has failed to consider that no transfer or conveyance of the said premises can be permitted without first obtaining the landowner's express consent, i.e. the Appellant herein. The Process Memorandum also states that the Resolution Plan cannot be conditional. Still, the Resolution Applicant has submitted the Resolution Plan, which dehors the Process Memorandum; thus, Resolution Plan is liable to be rejected.
# 150. In reply to the above, the Learned Counsel representing the Committee of Creditors submitted that Mr Ashish Jhunjhunwala, the Corporate Debtor’s promoter, had filed an application under Section 10 of the I&B Code, which was admitted on January 8, 2019. He has been a part of almost all ‘CoC’ meetings from the beginning, including the first ‘CoC’ Meeting conducted on February 7, 2018. Time and again, various issues about the Durgapur unit/land have been discussed in the ‘CoC’ Meetings in the presence of Mr Jhunjhunwala. However, he failed even once to point out that the Appellant was to be treated as a separate entity, and the land could not be a part of the Resolution Process. For the first time in the 21st ‘CoC’ Meeting held on February 11, 2019, Mr Ashish Jhunjhunwala raised an objection stating that Durgapur's land does not belong to the Corporate Debtor. The same was done only at the fag end when Mr Jhunjhunwala realised that the ‘CIRP’ was at the final stage against his expectations. Therefore, with the only aim of obstructing the Resolution Process, such objections were raised at such a belated stage, which is an afterthought.
# 151. For the first time, on February 28, 2019, the Appellant wrote to the Resolution Professional, stating that the land that did not belong to the Corporate Debtor should be excluded from the Resolution Process. The Appellant is not a separate legal entity but is only acting on the whims and fancies of Mr Ashish Jhunjhunwala. Therefore, the Corporate veil should be pierced, and the real promoter/management and the acts and intention could be noticed.
# 152. It is an admitted fact that the Appellant is a Corporate Guarantors and had mortgaged the land to the Financial Creditors. The Appellant is a Company, which is wholly owned by the promoter of the Corporate Debtor.
# 153. On perusal of the factory license (page 125 of the convenience compilation), it appears that the Appellant has provided the right to use the land to the Corporate Debtor since September 2006. The Corporate Debtor had constructed a plant and factory on the said land to set up, establish and run the plant and factory for its wire business from the said land.
# 154. The Appellant herein is the Corporate Guarantors to the loans availed by the Corporate Debtor from Financial Creditors. For this purpose, the Appellant had duly executed Deeds of Guarantee dated May 27, 2009. Accordingly, for the purpose of securing the loan granted to the Corporate Debtor, the present Appellant secured the said loans by way of creating an equitable mortgage of the property owned by it, more particularly the land, building and structure along with the immovable property situated at Durgapur.
# 155. The Guarantee described above gave all rights in respect of the mortgaged properties to the Financial Creditors. Clause 10 of the deed, as mentioned earlier, dated July 27 2009, is as under;
"In case the bank sells the hypothecated, pledged or mortgaged security/ies held in the account, the guarantors agree (s) that the bank may sell securities without giving any notice of such sale to the guarantors. The guarantors agrees that he will not question the sale or sale price in any manner or on any ground whatsoever."
# 156. Learned Counsel representing the ‘CoC’ argued that the Financial Creditors such as Punjab National Bank and Axis Bank had provided their respective loans to the Corporate Debtor on the basis that the repayment by the Corporate Debtor was secured by way of a mortgage over the land (provided by the Appellant) and by way of Corporate Guarantees provided by the Appellant itself.
# 157. By creating a mortgage over the land, Appellant created a security interest over the land in favour of Punjab National Bank (subsequently transfer to Respondent No.3/ARCIL) and Axis Bank. It is thus, evident that the land has been committed by the Appellant to be utilised for the repayment of the debts of Punjab National Bank and Axis Bank. The Punjab National Bank has already taken possession of the land and in the exercise of its power under Section 13(4) of the SARFAESI Act, 2002 and thus, the right to enforce the mortgage is created in its favour. The creation of a mortgage is evident based on documents relating to the deposit of the title deed.
# 158. By implication of Section 13(4) of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, a secured creditor can take possession of the secured assets, including the right to transfer by way of lease, assignment or sale for realising the secured asset. Accordingly, the mortgagees will have the right to enforce the mortgage over the land. The Resolution Plan provides the mechanism for the transfer of the land, which is as follows;
ARCIL and Axis Bank would assign a portion of the debt to Narantak Dealcom limited (a nominee of the Resolution Applicant).
Pursuant to such assignment, Vanguard will be required to take all actions is required to transfer the land to the Resolution Applicant.
This obligation to transfer the land will be pursuant to discharging of Vanguard's Corporate Guarantee and mortgage obligations.
In case of no consensual transfer of Vanguard, the creditors shall have the right to enforce the mortgage for the transfer of land.
In pursuance to the obligations of the Applicant under the guarantee obligations and the mortgage provided, the Resolution Applicant's 1st seeking a direction to allow the transfer of the land from the Applicant to the Corporate Debtor.
Failing this, the Resolution Plan suggests that the assignee of the loan and security should be allowed to enforce under SARFAESI Act and transfer the land to the Corporate Debtor.
# 159. It is pertinent to mention that Regulation 37 (B) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulation, 2016 provides that "a Resolution Plan shall provide for the measures, as may be necessary for Insolvency Resolution of the Corporate Debtor for maximisation of value of its assets, including but not limited to the sale of all or part of the assets whether subject to any security interest or not."
# 160. As per Section 31 of the Insolvency and Bankruptcy Code, 2016, the approved Resolution Plan binds all the stakeholders, including the Corporate Debtor's Guarantors. Thus Vanguard, being corporate Guarantor of the Corporate Debtor, is bound by the approved Resolution Plan. In light of the above discussion, we believe that the objections raised by "Vanguard/Appellant" are not sustainable.
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Blogger’s Comments; Para 158 provides for the consensual transfer of the land belonging to the corporate guarantor, failing which the Resolution Plan suggests that the assignee of the loan and security should be allowed to enforce under SARFAESI Act and transfer the land to the Corporate Debtor.
Here it worth noting that;
The propose assignee Narantak Dealcom limited (a nominee of the Resolution Applicant) is not a financial institution.
Facility of Enforcement of security interest under SARFAESI is only available to a financial institution.
Proposed / approved Resolution plan can not contravene any of the provisions of the law for the time being in force.
Section 30(2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan -
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(e) does not contravene any of the provisions of the law for the time being in force
Thus, under the present situation, the only option available to security creditors is to directly enforce the security interest against the property of the corporateTreatment of guarantor (land on which the factory of the corporate debtor is situated) under the provisions of SARFAESI.
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