NCLAT (2024.02.21) in Jaiprakash Associates Ltd. Vs. Jaypee Infratech Ltd. & Ors.. [Company Appeal (AT) (Insolvency) No. 548 of 2023 & I.A. No. 2643, 3702 of 2023] held that;
The law is thus well settled that after approval of the Resolution Plan, the Personal Guarantors and Corporate Guarantors have no right of subrogation especially when in the facts of the present case under Clause 34.50 of the Resolution Plan, right of subrogation is expressly extinguished.
The debt against the Corporate Debtor might have extinguished after approval of the
Resolution Plan but said consequence shall not be with regard to the Corporate Guarantors and the Personal Guarantors. The same shall be as per the express provisions of the Resolution Plan.
Excerpts of the order;
# 10. From the submissions of the Counsel for the parties and materials on record, following issues arise for consideration in these Appeals:-
(i) Whether Appellants have locus to challenge the order dated 07.03.2023 passed by the Adjudicating Authority approving the Resolution Plan of Suraksha Realty?
(ii) Whether the treatment of Income Tax dues in the Resolution Plan where they have been treated as Operational Creditor and offered only Rs. 10 Lacs violates the provision of sub-section (2) of Section 30?
(iii) Whether the treatment of claim of YEIDA towards farmers’ compensation and other claims of the YEIDA being treated as Operational Creditor and having offered only Rs. 10 lacs towards satisfaction of their dues violates provision of sub-section (2) of Section 30 of the Code and the Resolution Plan deserves to be set aside on this ground alone?
(iv) Whether YEIDA is a Secured Creditor of the Corporate Debtor?
(v) Whether the Resolution Plan violates provision of Section 30(2)(e) of the Code in removing the right of subrogation to the guarantors whereas under Indian Contract Act a surety or guarantor has right to subrogation and further upon discharge of principal debtor to repay the debt the liability of surety also gets extinguished?
(vi) Whether the Adjudicating Authority having denied several reliefs and concessions which clearly means that those provisions of Resolution Plan have been disapproved, the Adjudicating Authority ought not to have been approved the Resolution Plan and only course available for the Adjudicating Authority was to send the plan back to the CoC for reconsideration?
(vii) Whether the Adjudicating Authority in granting various reliefs and concessions has exceeded the jurisdiction vested in the Adjudicating Authority and by issuing various directions, Adjudicating Authority travelled beyond its jurisdiction and further no direction could have been given to statutory authority as has been directed in the impugned order, which is impermissible?
(viii) Whether Resolution Plan take into consideration 758 acres of land which became available to the Corporate Debtor consequent to allowing the avoidance application and subsequent to the judgment of the Hon’ble Supreme Court dated 26.02.2020?
(ix) Whether applicants who have been permitted to intervene in the appeal are entitled for any relief?
Question (i) Whether Appellant JAL and Manoj Gaur erstwhile promoter have locus to challenge the order dated 07th March, 2023 approving the resolution plan of Suraksha Realty?
# 35. Ultimately Hon’ble Supreme Court directed that Appellant will be given copies of all resolution plan submitted to the CoC within period of two weeks from the date of its judgment. In paragraph 25 of the Judgment, following has been held:
“25. We may indicate that the time that has been utilised in these proceedings must be excluded froma the period of the resolution process of the corporate debtor as has been held in ArcelorMittal (India) (P) Ltd. v. Satish Kumar Gupta [ArcelorMittal (India) (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1] (decided on 4-10-2018) (at para 83). In each of these cases, the appellants will be given copies of all resolution plans submitted to the CoC within a period of two weeks from the date of this judgment. The resolution applicant in each of these cases will then convene a meeting of the CoC within two weeks thereafter, which will include the appellants as participants. The CoC will then deliberate on the resolution plans afresh and either reject them or approve of them with the requisite majority, after which, the further procedure detailed in the Code and the Regulations will be followed. For all these reasons, we are of the view that the petition and appeal must be allowed and the Nclat judgment [Vijay Kumar Jain v. Standard Chartered Bank Ltd., 2018 SCC OnLine NCLAT 855] set aside.”
# 38. In view of the above submissions, we are of the view that appeals of appellant cannot be thrown out on the ground of locus. As noted above, the limited ground to challenge approval of the resolution plan is that the same is not in conformity with Section 30(2). We thus reject the objection of the respondent on the locus and proceed to examine the submissions raised by the Appellant.
Question No. (ii) Treatment of income tax dues
# 38. In view of the above submissions, we are of the view that appeals of appellant cannot be thrown out on the ground of locus. As noted above, the limited ground to challenge approval of the resolution plan is that the same is not in conformity with Section 30(2). We thus reject the objection of the respondent on the locus and proceed to examine the submissions raised by the Appellant.
Question No. (iii) and (iv) Treatment of claim of YEIDA
# 49. As noted above with regard to the claim of YEIDA, Successful Resolution Applicant has already submitted a proposal which is under active consideration. In any view of the matter, the issues pertaining to YEIDA cannot be decided in this appeal, where YEIDA is not a party. Appellant has filed this appeal as Suspended Promoter and Director of the Corporate Debtor and the issues pertaining to claim of YEIDA need to be considered in Company Appeal (AT) (Ins.) No.493 of 2023 filed by YEIDA challenging the impugned order. In so far as submission of learned counsel for the Appellant that YEIDA is a Secured Creditor which has wrongly been treated as Operational Creditor, such issue is also needed to be considered in Company Appeal (AT) (Ins.) No.493 of 2023 filed by YEIDA. We, thus, are of the view that issues pertaining to the claim of YEIDA and their ground to challenge the impugned order approving Resolution Plan are best suited to be examined and decided in the appeal filed by YEIDA where impugned order is under challenge and grounds have been raised. We, thus, are of the view that the issues raised by the Appellant, as noted above, need to be examined and considered in the appeal filed by YEIDA i.e. Company Appeal (AT) (Ins.) No.493 of 2023 and there is no necessity to consider those issues in this appeal which is filed by the Suspended Promoter and Director of the Corporate Debtor. Answer to both the questions is recorded accordingly.
Question No. (v) Whether the Resolution Plan violates provision of Section 30(2)(e) of the Code in removing the right of subrogation to the guarantors?
# 54. Section 140 lays down that when a guaranteed debt has become due on principal debtor and security as guaranteed is paid by the surety to the creditor, what is due to the creditor becomes right of the guarantor in respect of the debt and default to which guarantee relates. The provision enables to keep alive securities, benefit, any right of the creditor under the security or otherwise which is discharged by payment or performance of liability. In the facts of the present case, it is not the case of the Appellant that the Corporate Guarantor and Personal Guarantor have paid the dues of the creditor and thus they are entitled to get in the shoes of the principal creditor. On this single ground claim of Section 140, does not subsist. In the present case, debt of the Principal Borrower is being discharged consequent to the Resolution Plan under the IBC. We have already noticed clause 34.50 which expressly takes away the right of subrogation to the Guarantors. The Hon’ble Supreme Court had occasion to consider the right to Guarantors consequent to approval of Resolution Plan in IBC in “Lalit Kumar Jain vs. Union of India, (2021) 9 SCC 321”. Submission was advanced before the Hon’ble Supreme Court that once a resolution plan is accepted, the corporate debtor is discharged of liability. As a consequence, the guarantor whose liability is co-extensive with the principal debtor i.e. the corporate debtor, too is discharged of all liabilities. Above submission is noted in Para 115 of the judgment, which is as follows:
“115. The other question which parties had urged before this Court was that the impugned notification, by applying the Code to personal guarantors only, takes away the protection afforded by law; reference was made to Sections 128, 133 and 140 of the Contract Act, 1872; the petitioners submitted that once a resolution plan is accepted, the corporate debtor is discharged of liability. As a consequence, the guarantor whose liability is co-extensive with the principal debtor i.e. the corporate debtor, too is discharged of all liabilities. It was urged therefore, that the impugned notification which has the effect of allowing proceedings before NCLT by applying provisions of Part III of the Code, deprives the guarantors of their valuable substantive rights.”
# 55. The Hon’ble Supreme Court noted relevant provisions of the Contract Act including Section 141 of the Contract Act. The Hon’ble Supreme Court laid down that approval of Resolution Plan and finality imparted to it does not per se operate as a discharge of the guarantor’s liability. Following was laid down in Para 122 and 125:
“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 again, that an involuntary act of the principal debtor leading to loss of security, would not absolve a guarantor of its liability. In Maharashtra SEB [Maharashtra SEB v. Official Liquidator, (1982) 3 SCC 358] the liability of the guarantor (in a case where liability of the principal debtor was discharged under the Insolvency law or the Company law), was considered. It was held that in view of the unequivocal guarantee, such liability of the guarantor continues and the creditor can realise the same from the guarantor in view of the language of Section 128 of the Contract Act, 1872 as there is no discharge under Section 134 of that Act. This Court observed as follows:
“7. Under the bank guarantee in question the Bank has undertaken to pay the Electricity Board any sum up to Rs 50,000 and in order to realise it all that the Electricity Board has to do is to make a demand. Within forty-eight hours of such demand the Bank has to pay the amount to the Electricity Board which is not under any obligation to prove any default on the part of the Company in liquidation before the amount demanded is paid. The Bank cannot raise the plea that it is liable only to the extent of any loss that may have been sustained by the Electricity Board owing to any default on the part of the supplier of goods i.e. the Company in liquidation. The liability is absolute and unconditional. The fact that the Company in liquidation i.e. the principal debtor has gone into liquidation also would not have any effect on the liability of the Bank i.e. the guarantor. Under Section 128 of the Contract Act, 1872, the liability of the surety is coextensive with that of the principal debtor unless it is otherwise provided by the contract. A surety is no doubt discharged under Section 134 of the Contract Act, 1872 by any contract between the creditor and the principal debtor by which the principal debtor is released or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor. But a discharge which the principal debtor may secure by operation of law in bankruptcy (or in liquidation proceedings in the case of a company) does not absolve the surety of his liability.””
“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.”
# 56. The Resolution Plan after approval is binding on the Corporate Debtor, its employees, members, creditors including its Directors and Guarantors. Section 31(1) of the IBC provides as follows:
“31. (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve3 the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, 1[including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed,] guarantors and other stakeholders involved in the resolution plan.
2[Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation.]”
# 57. When the statute provides that the Resolution Plan is binding on the Guarantors also, Appellants are not entitled to make any submission that they are not bound by Clause 34.50 of the Resolution Plan which expressly extinguishes the right of subrogation. In the judgment of Hon’ble Supreme Court in “Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta, (2020) 8 SCC 531” under the heading “Extinguishment of Personal Guarantees and Undecided Claims” the issue has been dealt by the Hon’ble Supreme Court from Para 100 to 107. In the Resolution Plan which came for consideration in Essar Steel’s case, clause of Resolution Plan is extracted in Para 103 of the judgment which provides that “claims of the guarantor on account of subrogation, if any, under any such guarantee shall be deemed to have been abated, released, discharged and extinguished”. The submission of learned counsel for the Appellant challenging the extinguishment of claim of guarantee on account of subrogation was repelled. We may notice Para 100 to 107 of the judgment, which is as follows:
“Extinguishment of Personal Guarantees and Undecided Claims
100. Shri Gopal Subramanium and Shri Rakesh Dwivedi have also appealed against the extinguishment of the rights of creditors against guarantees that were extended by the promoters/promoter group of the corporate debtor. According to them, this was done by a side wind by the Appellate Tribunal without any reasons for the same.
101. Shri Prashant Ruia a promoter/director of the corporate debtor in his personal guarantee dated 28-9- 2013, specifically stated as follows:
“7. The obligations of the Guarantor under this Guarantee shall not be affected by any act, omission, matter or thing that, but for this Guarantee, would reduce, release or prejudice any of its obligations under this Guarantee (without limitation and whether or not known to it or any Secured Party) including:
***
(g) any insolvency or similar proceedings.”
102. Also, under the caption “terms of settlement”, the final resolution plan dated 2-4-2018, as approved on 23-10-2018, specifically provided:
“Financial Creditors:
Pursuant to the approval of this resolution plan by the Adjudicating Authority, each of the financial creditors shall be deemed to have agreed and acknowledged the following terms:
(i) The payment to the financial creditors in accordance with this resolution plan shall be treated as full and final payment of all outstanding dues of the corporate debtor to each of the financial creditors as of the effective date, and all agreements and arrangements entered into by or in favour of each of the financial creditors, including but not limited to loan agreements and security agreements (other than corporate or personal guarantees provided in relation to the corporate debtor by the existing promoter group or their respective affiliates) shall be deemed to have been (i) assigned/novated to the resolution applicant, or any person nominated by the resolution applicant, with effect from the effective date, with no rights subsisting or accruing to the financial creditors for the period prior to such assignment or novation; and (ii) to the extent not legally capable of assigned or novated-terminated with effect from the effective date, with no rights accruing or subsisting to the financial creditors for the period prior to termination.
(ii) In relation to the loan and financial assistance provided to the corporate debtor; each of the financial creditors, as the case maybe, shall:
— Assign/novate all security given (including but not limited to encumbrance over assets of the corporate debtor, pledge of shares of the corporate debtor (other than corporate guarantees and personal guarantees) related in any manner to the corporate debtor) to the resolution applicant and/or its connected persons, and/or banks or financial institutions designated by the resolution applicant in this regard, pursuant to the Acquisition Structure, with effect from the effective date;
— Issue such letters and communications, and take such other actions, as may be required or deemed necessary for the release, assignment or novation of (i) the encumbrance over the assets of the corporate debtor; and (ii) the pledge over the shares of the corporate debtor; within 5 (five) business days from the effective date; and
— Be deemed to have waived all claims and dues (including interest and penalty, if any) from the corporate debtor arising on and from the insolvency commencement date, until the effective date.”
103. Shri Rohatgi, learned Senior Advocate appearing on behalf of Shri Prashant Ruia, also pointed out Section XIII(1)(g) of the resolution plan dated 23-10- 2018, in which it is stated as follows:
“Upon the approval of the resolution plan by the Adjudicating Authority in relation to guarantees provided for and on behalf of, and in order to secure the financial assistance availed by the corporate debtor, which have been invoked prior to the effective date, claims of the guarantor on account of subrogation, if any, under any such guarantee shall be deemed to have been abated, released, discharged and extinguished.
It is hereby clarified that, the aforementioned clause shall not apply in any manner which may extinguish/affect the rights of the financial creditors to enforce the corporate guarantees and personal guarantees issued for and on behalf of the corporate debtor by existing promoter group or their respective affiliates, which guarantees shall continue to be retained by the financial creditors and shall continue to be enforceable by them.”
104. We were also informed by the learned Senior Counsel that the personal guarantees of the promoter group have been invoked and legal proceedings in respect thereof are pending. It has been pointed out to us that Shri Prashant Ruia and other members of the promoter group, who are guarantors, are not parties to the resolution plan submitted by ArcelorMittal and hence, the resolution plan cannot bind them to take away rights of subrogation, which they may have if they are ordered to pay amounts guaranteed by them in the pending legal proceedings.
105. Section 31(1) of the Code makes it clear that once a resolution plan is approved by the Committee of Creditors it shall be binding on all stakeholders, including guarantors. This is for the reason that this provision ensures that the successful resolution applicant starts running the business of the corporate debtor on a fresh slate as it were. In SBI v. V. Ramakrishnan [SBI v. V. Ramakrishnan, (2018) 17 SCC 394 : (2019) 2 SCC (Civ) 458] , this Court relying upon Section 31 of the Code has held: (SCC p. 411, para 25)
“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 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.”
106. Following this judgment in V. Ramakrishnan case [SBI v. V. Ramakrishnan, (2018) 17 SCC 394 : (2019) 2 SCC (Civ) 458] , it is difficult to accept Shri Rohatgi’s argument that that part of the resolution plan which states that the claims of the guarantor on account of subrogation shall be extinguished, cannot be applied to the guarantees furnished by the erstwhile Directors of the corporate debtor. So far as the present case is concerned, we hasten to add that we are saying nothing which may affect the pending litigation on account of invocation of these guarantees. However, NCLAT judgment being contrary to Section 31(1) of the Code and this Court’s judgment in V. Ramakrishnan case [SBI v. V. Ramakrishnan, (2018) 17 SCC 394 : (2019) 2 SCC (Civ) 458] , is set aside.
107. For the same reason, the impugned NCLAT judgment [Standard Chartered Bank v. Satish Kumar Gupta, 2019 SCC OnLine NCLAT 388] in holding that claims that may exist apart from those decided on merits by the resolution professional and by the Adjudicating Authority/Appellate Tribunal can now be decided by an appropriate forum in terms of Section 60(6) of the Code, also militates against the rationale of Section 31 of the Code. A successful resolution applicant cannot suddenly be faced with “undecided” claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who would successfully take over the business of the corporate debtor. All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor. This the successful resolution applicant does on a fresh slate, as has been pointed out by us hereinabove. For these reasons, NCLAT judgment must also be set aside on this count.”
# 58. The law is thus well settled that after approval of the Resolution Plan, the Personal Guarantors and Corporate Guarantors have no right of subrogation especially when in the facts of the present case under Clause 34.50 of the Resolution Plan, right of subrogation is expressly extinguished. The debt against the Corporate Debtor might have extinguished after approval of the Resolution Plan but said consequence shall not be with regard to the Corporate Guarantors and the Personal Guarantors. The same shall be as per the express provisions of the Resolution Plan. We, thus, do not find any substance in submission of the Appellant that debt is extinguished under Section 135 and they have right of subrogation under Section 140 and to receive provision of securities under Section 141, cannot be accepted. The question is answered accordingly.
Question No. (vi) and (vii)
# 62. From the above direction issued by the Adjudicating Authority it is clear that the SRA has prayed for issuance of necessary directions to SEBI, relevant stock exchanges and MCA for expediting the delisting of shares and take necessary actions in a time bound manner as applicable under the prevailing laws in order to implement the Resolution Plan. The above direction is only for the purpose of implementing the Resolution Plan and does not violate any statutory provisions. The use of expression “as applicable under the prevailing laws” clearly indicate that the SRA is not seeking any relief and concession in violation of any applicable law. The objection raised by the Appellant thus has no merit.
# 73. The above clause clearly stipulates the statement of the Successful Resolution Applicant that the implementation of Resolution Plan is not subject to grant of all reliefs and concessions, as prayed in the Resolution Plan. It is clear that any reliefs and concessions not been granted thus cannot have any adverse effect nor by non-grant of any relief and concession, for the reasons which are given by the Adjudicating Authority in the impugned order, there can be said to be any violation of law. There is no challenge to the reliefs and concessions not granted by the Adjudicating Authority by the Successful Resolution Applicant. The submission of the Appellant that as several reliefs and concession have not been granted which were part of the Resolution Plan, the Resolution Plan cannot be approved and should be sent back to the CoC also does not commend us. As noted above, the Successful Resolution Applicant has clearly contemplated that the Successful Resolution Applicant will implement the plan whether or not reliefs and concessions are granted. We, thus, do not find any infirmity in the reliefs and concessions granted by the Adjudicating Authority. As noted above, the fact that certain reliefs and concessions have not been granted could have not adverse effect on validity of the Resolution Plan or it can be said that any illegality has been crept in the Resolution Plan on the above ground. We thus answer the question accordingly.
Question No. (viii)
# 77. The judgment of Hon’ble Supreme Court in “Anuj Jain Vs Axis Bank Ltd.” was delivered before approval of the Resolution Plan on 03.03.2020. From judgment of Jaypee Kensington of the Hon’ble Supreme Court it is noticeable that even in NBCC’s plan relief was sought with regard to 858 acres of land. Both the Resolution Applicants were thus well aware about order of the Hon’ble Supreme Court dated 26.02.2020 and there was no occasion for not including the said land which was available for the kitty of the Corporate Debtor after release of encumbrances. We, thus, do not find any substance in submission of the Appellant that 758 acres of land has not been included in the plan submitted by Suraksha Realty.
Question No. (ix)
# 79. It is well settled that interveners by the I.A. cannot claim any relief for themselves. Interveners are either to support the order which is subject matter of challenge or support the Appellant in their challenge. The Applicants who have filed their claims before the IRP and whose claims are reflected are fully entitled to approach the SRA/Monitoring and Implementation Committee for their entitlement, for which they are entitled as per the Resolution Plan.
Conclusion
# 83. In view of the foregoing discussion and conclusion, we do not find any ground in these appeals to interfere with the impugned order dated 07.03.2023 passed by the Adjudicating Authority at the instance of the Appellants.
# 84. Before we close, we record our compliments to the learned counsel for the respective parties and their associates who have rendered assistance to the Court in dealing with variety of questions involved in these matters.
# 85. In result, both the appeals are dismissed. Parties shall bear their own costs.
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