TMI Blog2018 (2) TMI 984X X X X Extracts X X X X X X X X Extracts X X X X ..... versely impact the credibility of the processes under the Code. It is clear that contract of guarantee under which no claim has been made and which need not be performed cannot be treated as a subsisting or enforceable contract for clause (h) of section 29A, as the liability to pay for a guarantor arises when the debt is crystalised. If the guarantee is not invoked and demand is not made on the guarantor, debt payable by him is not crystalised. The Company Application has been decided to clarify the position of the Resolution Applicant, who happens to be the personal guarantor of a corporate debtor, against whom guarantee has not been invoked, and demand has not been made, regarding his eligibility to submit a resolution plan. In such a situation guarantor cannot be deemed to be a defaulter, therefore, his case is not covered under clauses (c) and (h) of section 29A of the amended I.B. Code. Disqualifying the entire class of guarantors under clause (h) of section 29A would be discriminatory. However, it is to be made clear that we have clarified the legal position only and CoC has to take independent decision on the Resolution Plan of the applicant. - C.A. (I.B.) No. 543/KB/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions on Resolution Plan took place, and the applicant was advised to incorporate the feedback of the Members and present the final Resolution Plan for voting. The majority of CoC members expressed their satisfaction and more or less, the consensus was arrived at for approving the amended Resolution Plan. In the 9th meeting, CoC dated 18th November 2017, the Resolution Plan was deliberated in details, and it was decided that a final resolution plan will be submitted by the Applicant and Resolution Professional shall submit the Resolution Plan to the Committee of Creditors for voting in its tentative meeting on 11th December 2017. The Resolution Applicant submitted the amended Resolution Plan on 22nd November 2017. It is also contended by the Resolution Applicant that the amended Resolution Plan was thoroughly examined by the Legal Counsel for the Resolution Professional. The Resolution Applicant incorporated certain amendments in the Resolution Plan as per the advice of the Counsel of the Resolution Professional, and final Resolution Plan was submitted before the Resolution Professional on 30th November 2017. Resolution Professional circulated the amended Resolution Plan dated 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29A; the applicant has not indulged in preferential transaction, undervalue transaction or fraudulent transaction as provided in clause (g) of section 29A. The applicant has further stated that the guarantee executed in favour of the Creditor by the Applicant in respect of Corporate Debtor under Insolvency Resolution Process or under liquidation has not been invoked and the applicant is not a defaulter. The applicant is not a person connected in respect of such person meets any of the criteria which is specified in clauses (a) to (h) of section 29A of the Insolvency Bankruptcy Code, 2016. Applicant has not been subject to any of the disability correspondings to clauses (a) to (i) of section 29A under the Code. Applicant has further stated that the Resolution Professional convened a meeting of CoC on 1st December 2017 to discuss and deliberate on the impact of an ordinance passed by the Govt. of India about IBC, 2016 amendment dated 23rd November 2017. The said agenda item of the notice was only for discussion and not for voting. In the said CoC meeting, CoC shows inability to accept the view of the legal expert and opined that the applicant was ineligible to submit the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tle their dues. The applicant has further stated that he is not disqualified under clause (h) of section 29A as the creditors have neither invoked the guarantee extended by the Applicant nor any demand has been made on the applicant to make any payments as guarantor of the Corporate Debtor. Applicant has stated that he is not a defaulter under the Guarantee. The Resolution Applicant does not have at present any enforceable guarantee which has been executed in favour of the creditor in respect of the Corporate Debtor. The Applicant has stated that by purporting to disqualify the entire class of guarantors under clause (h) of section 29A would be violative of the valuable rights guaranteed to the applicant. Petitioner has submitted that if the guarantee is not invoked and demand is not made on the Guarantor, the debt payable by him is not crystalised and the guarantor cannot be therefore said to be in default for breach of the guarantee and penalise merely because a legal and binding contract of guarantee exists, which is otherwise impossible but is subject to its invocation in accordance with the terms of the guarantee. The Resolution Applicant has further alleged that CoC has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure that Corporate Debtor survives . We have perused the minutes of the CoC meeting dated 1st December 2017, which is Annexure Q to the Application. On perusal of the said minutes, it appears that agenda in that meeting was regarding detailed deliberation on the impact of ordinance dated 23rd November 2017 passed by Government of India. It is stated in the minutes that: RP has sought clarification from the Resolution Applicant about his eligibility with regard to the said Ordinance. The same is proposed to be discussed with all CoC members in the meeting to take the necessary step forward. Regarding applicability of the provisions of the said Ordinance on the Resolution Applicant, a legal opinion by an expert was sought by Resolution Applicant and submitted to Resolution Professional along with his views which were shared with CoC members before the meeting on 29th November 2017. According to expert opinion, based on a harmonious interpretation of all the provisions including section 29A(c) and (h) of the Ordinance with the intent and spirit of the law, Code and the BLRC Report, the Resolution Applicant should be treated as eligible. There was no intent of the Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehalf of SPV for their unpaid dues. RP advised that invocation of the bank guarantee against the Corporate Debtor shall be a violation of the moratorium. On perusal of the above contents of the 10th CoC meeting dated 1st December, 2017, it appears that the Resolution Plan submitted by the Resolution Applicant was not approved by the CoC on account of amended provision of IBC, i.e. clause (c) and (h) of Section 29A, which has been promulgated by the Ordinance dated 23rd November 2017. It is crucial to consider the scope of clauses (c) and (h) of Sec. 29A of the Insolvency and Bankruptcy Code, which is given below for ready reference: Sec. 29A: A person shall not be eligible to submit a resolution plan, if such person, or any such person acting jointly with such person, or any person who is a promoter or in the management or control of such person,- (c) whose account is classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 and period of one year or more has elapsed from the date of such classification and who has failed to make the payment of all overdue amounts with interest there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective sought to be achieved by way of amendments through the Ordinance is not to disqualify the promoters of the Corporate Debtor as a class from submitting a Resolution Plan. In fact, in Insolvency proceedings, the promoters of Insolvent Company is the most natural person to submit a plan unless the insolvency is caused due to his acts of omission and commission or if he has an indulgence, fraud, malfeasance or other criminal activity and causes financial loss to creditors, knowingly or with criminal intent. Merely because there is a default by a borrower in repayment of borrowed amount to a creditor does not render the borrower or its guarantor, dishonest. Every act of default cannot be equated with malfeasance. Therefore, it can safely be concluded that the intention of the legislature is not to prohibit bona fide persons from submitting Resolution Plan. Clause (h) of Section 29A is not to disqualify the promoters as a class for submitting a Resolution Plan. The intent is to exclude such class of persons from offering a Resolution Plan, who on account of their antecedents, may adversely impact the credibility of the processes under the IB Code. The objective is to disqual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ult for breach of the guarantee and penalise merely because a legal and binding contract of guarantee exists which is enforceable but is subject to its invocation by the terms of guarantee. It is a settled position of law that the liability of a guarantor may accrue only on invoking the guarantee. In the case in hand, the guarantee has not been invoked, and the personal guarantor has not committed any default. No demand has been made under guarantee. Therefore, no default in the payment of dues by the guarantor has occurred. During the moratorium period, the guarantee cannot be invoked. Thus, present Resolution Applicant is not barred by clause (c) and clause (h) of section 29A of the I.B. Code. It is pertinent to mention that in the case in hand the extended period for submission of Resolution Plan is going to expire on 23rd Dec 2017. The Resolution Applicant has submitted the revised Resolution Plan after deliberate discussion in consecutive meetings of CoC, and the same was under consideration meanwhile IB Amendment Ordinance promulgated on 23rd Nov 2017. Aims and objective of the Ordinance were to prohibit certain persons from submitting a Resolution Plan who, on account ..... X X X X Extracts X X X X X X X X Extracts X X X X
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