NCLT Mumbai allows appointment of RP under Section 97 (4) in SBI’s case against Mr. Anil Ambani
ORDER
The Hon’ble National Company Law Tribunal (NCLT) has, by way of its order dated August 20th 2020, in the matter of State Bank of India Vs Anil Dhirajlal Ambani in Interlocutory Application (IA) No. 1009 of 2020 inter-alia appointed Mr. Jitender Kothari as the Resolution Professional (RP) under Section 97 (4) of the Code read with Rule 8 of the I & B (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors) Rules, 2019.
FACTS OF THE CASE
1. These Applications are filed by the Financial Creditor against a Personal Guarantor of the Corporate Debtors seeking urgent hearing and necessary orders under section 97(3) of the Insolvency and Bankruptcy Code, 2016 (the Code for short).
2. The Reliance Communications Limited (RCOM) in or around 2015-16 approached the Project Finance Strategic Business Unit of State Bank of India, SBI (hereinafter referred to as the Financial Creditor) seeking credit facilities to the tune of Rs. 565,00,00,000/- (Rupees Five Hundred Sixty-five Crores) for the purpose of repayment of certain existing financial indebtedness. Similarly, another Company viz. Reliance Infratel Limited (RITL) one of its sister concerns also approached the Financial Creditor for the credit facilities of Rs. 635,00,00,000/- (Rupees Six Hundred Thirty-five Crores) for the repayment of existing financial indebtedness. The Financial Creditor under the Rupee Loan Facilities Agreement dated 29.08.2016, as amended and restated on 08.09.2016 provided the aforesaid amounts as loan respectively to RCOM and RITL. The Respondent is the Chairman of the Reliance ADA Group, the umbrella organization under which RCOM and RITL functioned. The Respondent, along with other securities, provided personal guarantee under a Personal Guarantee Deed dated 23.09.2016 in favour of the Financial Creditor in respect of the credit facilities.
3. Both RCOM and RITL committed defaults in repayment in and around January 2017.
4. NCLT by a common order dated 15.05.2018/17.05.2018 admitted the batch of Company Petitions filed by Ericsson India Private Limited under section 9 of the Code initiating Corporate Insolvency Resolution Process (CIRP) against RITL (CP No. 1385 of 2017) and RCOM (CP No. 1387 of 2017).
5. In view of the default in payment of the credit facilities the Applicant on 31.01.2018 invoked the personal guarantee and issued an Invocation Notice of the even date upon the Respondent.
6. Despite various correspondence between the Financial Creditor and the Personal Guarantor (Respondent) no repayment was made on behalf of the Respondent.
7. The Applicant apprehends that it would not be able to recover the claim amount from the CIRP or from the borrowers RCOM & RITL.
8. It accordingly issued a Demand Notice dated 20.02.2020 in Form-B to the Respondent demanding payment. The Notice was not responded to by the Respondent.
9. The Applicant accordingly filed the Petitions under section 95 of the Code against the Respondent before this Authority on 12.03.2020
10. The Respondent had also provided personal guarantee to various other banks without obtaining the consent of the Financial Creditor in availing credit facilities for the group companies.
11. The Chinese Banks have initiated recovery proceedings against the Respondent in the United Kingdom. The Commercial Division of the Hon‟ble High Court of England and Wales by an order dated 22.05.2020 has directed the Respondent to pay an amount of 717 million US Dollars (Indian Rs. 5447,53,29,750/- as on 24.05.2020) within 21 days. In case the Respondent fails to make the payment, the Chinese Banks could pursue all available options of enforcement of the order of the UK Court. The Applicant apprehends that the Chinese Banks might attempt to initiate enforcement or execution proceedings against the Personal Guarantor in India including attachment or restraint of his assets in India and abroad. Such action would have an adverse effect on the recovery rights of the Applicant. Section 96 of the Code provides for an interim moratorium, the moment the Application under section 94 or 95 of the Code is filed. Thus, the appointment of the Resolution Professional under section 97 of the Code is critical and essential not only for the Applicant but also to safeguard the assets of the Personal Guarantor in terms of the provision of the Code.
SUBMISSIONS BY THE RESPONDENT
1. Corporate Guarantee provided by RITL, Reliance Communications Infrastructure Limited, RCOM and Reliance Telecom Limited would be invoked before invoking the Personal Guarantee.
2. The Personal Guarantee would be invoked only upon there being any shortfall in the recovery of amounts under the credit facilities.
3. By their letter dated 13.03.2019 the Advocates of RCOM intimated to the Applicant that in view of the ongoing CIRP of RCOM and RITL, the liabilities under the resolution plan approved under the Code pursuant to which the Personal Guarantee will be rendered redundant.
4. UV Asset Reconstruction Company Limited had submitted a Resolution Plan in the CIRP. The Resolution Plan of UV Asset Reconstruction Company should be able to discharge the entire financial debt of RCOM to the Applicant and other lenders.
5. Therefore, upon approval of the resolution plan, there will be no amount outstanding in respect of any of the borrowings of RCOM including the present credit facilities. Under the circumstances the Respondent‟s liability as Guarantor under Personal Guarantee would stand fully and completely discharged.
6. In view of the filing of the Petitions on 12.03.2020 the interim moratorium has come into force till the disposal of the Company Petitions. Therefore, all legal actions proceeded against the Respondent shall be deemed to have been stayed and the creditors of the Respondent cannot initiate any legal action in respect of any debt. Thus, the Chinese Banks would be restricted from initiating any legal action or proceedings for the enforcement of the UK Court‟s Order in India. The apprehension of the Applicant is thus ill-founded and there could be no urgency in the matter.
7. It is submitted by the Respondent that while the Resolution Plans for the Corporate Debtors are pending consideration, it would be prudent not to proceed against the Personal Guarantor. In this connection reliance is placed on the observations of the Hon‟ble NCLAT in Dr. Vishnu Kumar Agarwal v. M/s. Piramal Enterprises Limited (Company Appeal (AT) (Insolvency) No. 346 & 347 of 2018 decided on 08.01.2019).
SUBMISSIONS BY THE APPLICANT
1. On the other hand, it is submitted by the Financial Creditor that the judgment cited would not be applicable in the present case as the judgment relates to initiation of Corporate Insolvency Resolution Process against two Corporate Guarantors. Even otherwise the judgement is impugned in Civil Appeal No. 878/2019 and is pending before the Apex Court. The Hon‟ble Apex Court have passed an order of status quo as it exists today and shall be maintained till the final decision is brought forth.
ISSUES FOR CONSIDERATION
Issue No. 1 Whether in view of pendency of the CIRP or liquidation process against the Corporate Debtor, an application for initiation of Insolvency Resolution Process can be filed against the Personal Guarantor?
Issue No. 2 Whether the liability of a guarantor of a debt of a corporate debtor stands reduced/extinguished upon an Insolvency Resolution Plan in respect of the corporate debtor, being approved under the Insolvency and Bankruptcy Code, 2016?”
Issue No. 3 Whether due to pendency of the Resolution Plans, the personal guarantor can be proceeded against under section 60(2) read with sections 95 and 97(3) of the Code?
DELIBERATION ON ISSUES
Issue No. 1
1) Section 60(2) of the Code sets the tone for initiation inter alia of insolvency resolution of a personal guarantor of the Corporate debtors. Section 60(2) of the Code reads as under:
“(2) Without prejudice to sub-section (1) and notwithstanding anything to the contrary contained in this Code, where a corporate insolvency resolution process or liquidation proceeding of a corporate debtor is pending before a National Company Law Tribunal, an application relating to the insolvency resolution or [liquidation or bankruptcy of a corporate guarantor or personal guarantor, as the case may be, of such corporate debtor] shall be filed before such National Company Law Tribunal.”
2) Section 60(2) of the Code provides that proceedings against the Personal Guarantor can simultaneously be filed.
3) A plain reading of the provision would indicate that while an Application for corporate insolvency resolution process or liquidation proceedings of corporate debtors are pending before this Authority i.e. to say during the pendency of a process of corporate insolvency resolution of the Corporate Debtors, an Application against the Personal Guarantor shall have to be filed
Issue No. 2 & 3
1) The Hon‟ble Calcutta High Court in Gauri Shankar (supra) in a similar matter, inter alia framed the following issue. “8. The issues that have fallen for consideration in the present writ petition are as follows: –
a) Whether the liability of a guarantor of a debt of a corporate debtor stands reduced/extinguished upon an Insolvency Resolution Plan in respect of the corporate debtor, being approved under the Insolvency and Bankruptcy Code, 2016?”
2) While discussing the issue it referred to the decision of the Hon‟ble Apex Court in Maharashtra State Electricity Board v. Official Liquidator1 and quoted the following.
“28. The Supreme Court in Maharashtra State Electricity Board, Bombay (supra) has held that, 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. In such case, the Supreme Court has considered the interplay of sections 128 and 134 of the Act of 1872. In the facts of that case, a company in respect of which a bank issued a guarantee in favour of the Electricity Board, went into liquidation. The Supreme Court has held that, the fact that the company which is the principal debtor has gone into liquidation would not have any effect on the liability of the guarantor.
xxx xxx xxx
30. The Supreme Court in Canonnore Spinning and Weaving Mills Ltd (supra)2 has considered discharge of liability of a guarantee under the provisions of section 141 of the Act of 1872. It has held that, a definite volition on the part of the creditor is required to take place for the guarantor to stand discharged in terms of section 141 of the Act of 1872. It has held that, the liability of the guarantor cannot but be stated to be a strict liability and even if the principal debtor is discharged from his liability unless such discharge is through the act of the creditor without consent of the surety/guarantor, the creditor’s right of action against the surety is preserved.”
3) Basing on the law decided the Hon‟ble High Court answered the question in the negative. It held that a discharge which the principal debtor may secure by operation of law in bankruptcy or in liquidation proceedings does not absolve the surety of his liability. The Hon‟ble Court have also held that the fact that the Company i.e. principal debtor has gone into liquidation would not have any effect on the liability of the guarantor. The principle thus laid down applies on all fours to the case at hand.
4) In view of such authoritative pronouncement by the Hon‟ble Apex Court, it is clear that notwithstanding pendency of the Resolution Plans, the personal guarantor can be proceeded against under section 60(2) read with sections 95 and 97(3) of the Code.
5) This itself indicates that the process of corporate insolvency resolution of the Corporate Debtors in an Application relating to insolvency resolution etc. of a personal guarantor needs to be filed and can be prosecuted. The law doesn‟t envisage that the insolvency resolution of the personal guarantor should follow only when the process of corporate insolvency resolution of the corporate debtor has come to an end. Therefore, the submission that this Authority should wait till the resolution of RCOM or RITL is successfully accomplished and the debts of the corporate debtors have been satisfied, would be eristic.
6) It is to be remembered that the present forum is not a recovery forum and has nothing to do with the satisfaction or otherwise of the debts of the corporate debtors. The submissions accordingly don‟t hold much water.
CONCLUSION
Thus, the Hon’ble NCLAT allowed the application filed by the applicant and appointed Mr. Jitender Kothari as the Resolution Professional (RP) under Section 97 (4) of the Code read with Rule 8 of the I & B (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors) Rules, 2019
Relevant Links/Downloads:
- NCLT Order dated 20.08.2020 https://www.ibbi.gov.in/uploads/order/97f88397b82fb7fac614eccee7ceccaf.pdf
Date: August 21, 2020
About the Author: The author (CS Lovkesh Batra) is Company Secretary by profession and works in the area of Insolvency & Bankruptcy Law.
Disclaimer: The entire contents of this document have been prepared on the basis of the information existing at the time of the preparation. The author and IBC Law Reporter does not take responsibility of the same and this document cannot used to be quoted before any authority under any law.
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