SVA Family Welfare Trust & Anr VS UJAAS ENERGY LIMITED AND Ors
CA (AT) (Ins) 266of 2023
Facts:
1.Corporate Insolvency Resolution Process (CIRP) was initiated against ‘M/s. Ujaas Energy Limited’ vide order dated 17.09.2020. In pursuance of publication of Form-G, Appellant submitted its Resolution Plan. There were multiple rounds of discussions and deliberations with regard to Final Resolution Plan dated 05.07.2021 read with addendum dated 03.08.2021 submitted by the Appellant which was placed before the Committee of Creditors (CoC) in its 18th CoC meeting.
2.Resolution Plan of the Appellant was approved by the CoC by 78.04% vote shares on 30.08.2021. The Letter of Intent was issued to the Appellant on 31.08.2021 and thereafter on 16.09.2021, Resolution Professional filed an I.A No. 190 of 2021 before the Adjudicating Authority for approval of the Resolution Plan.
3.Bank of Baroda, member of the CoC holding 5.83% voting share, had filed an Affidavit objecting to the Resolution Plan on the basis that it provided for extinguishment of rights under personal guarantees. The Adjudicating Authority vide impugned order dated 06.01.2023 rejected I.A No.190 of 2021.
4.Appellant has filed the appeal against the above order.
Issue: Whether in a Resolution Plan can there be a clause which proposes to extinguish security interest of a Financial Creditor by way of personal guarantee of the Directors of the Corporate Debtor?
Arguments:
For Appellant:
1.Counsel for the Appellant submits that the Successful Resolution Applicant has submitted Resolution Plan which proposed the payment of INR 74,81,75,744/- against the liquidation value of INR 43,08,09,000/. Appellant has proposed INR 45,00,00,000/- towards the value of Corporate Debtor and INR 23,81,75,744/- towards release of personal guarantees. The personal guarantees is to be extinguished after paying due compensation to the Financial Creditor
2.Counsel submitted that personal guarantees are security interest under the Code and all security interest can be dealt with in a Resolution Plan. Counsel further submits that the commercial wisdom of the CoC have to be given paramount importance and the Adjudicating Authority ought not to have been interfered with commercial wisdom of the CoC at the instance of a dissenting Financial Creditor
3.Counsel for the CoC has also supported the submissions of the Appellant and submits that when CoC has approved the Resolution Plan with majority vote of 78.04%, the plan could not have been interfered with by the Adjudicating Authority.
For Respondent:
1.Counsel for Respondent submitted that plan could not have contained any provision by which personal guarantees given in favour of the Bank of Baroda could have been extinguished. Bank of Baroda is fully entitled to proceed to realise its dues from the personal guarantors since the payment under the plan does not liquidate the dues of the Bank of Baroda.
Decision: In a Resolution Plan there can be a clause which proposes to extinguish security interest of a Financial Creditor by way of personal guarantee of the Directors of the Corporate Debtor.
Rationale:
1.Hon’ble NCLAT noted that The use of expressions ‘per se’ and ‘ipso facto’ clearly indicate that by approval of the Resolution Plan, personal guarantors are not per se and ipso facto discharge from its obligation which may arise of the guarantee given to the Financial Creditor. The use of above expressions conversely indicates that there may be situations and circumstances, for example, relevant clauses in the Resolution Plan by which personal guarantors may be discharged.
2.There can be no dispute that Moratorium under Section 14 is not applicable on the personal guarantors. Non-applicability of the Moratorium on personal guarantor is with different object and purpose.
3.NCLAT noted that All Financial Creditors has assented for relinquishment of such security except Bank of Baroda which had only 5.83% vote share. The decision of the CoC to accept the value for relinquishment of personal guarantee was a commercial decision of the CoC which cannot be allowed to be impugned at the instance of dissenting Financial Creditor.
Order:
