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TMI Blog2020 (9) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... dred 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. Both RCOM and RITL committed defaults in repayment in and around January 2017. The accounts were retrospectively declared as Non-Performing Account (NPA) with effect from 26.08.2016 pursuant to the Risk Based Supervision during the year 2017. This Authority by a common order dated 15.05.2018/17.05.2018 admitted the batc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia 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. The Applicant hence filed the present Petitions. Therein it filed the present Applications for urgent hearing and necessary orders under section 97 of the Code. Both the Application based on common facts were heard together and shall abide by the orders passed herein. 4. The Respondent in his Counter admitted the Credit Facilities availed by RCOM and RTIL and his personal guarantee under the Deed of Guarantee dated 23.09.2016. It is submitted that the credit facilities were inter alia secured by the following: a. First ranking and second ranking charge by hypothecation over various assets of RCOM, RITL, Reliance Communications Infrastructure Limited ("RCIL") and Relianc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thority by an Order dated 09.05.2019 (in MA-1766/2019) excluded the period from 30.05.2018 to 30.04.2019 taken before the Hon'ble NCLAT from the period of CIRP. The Applicant, notwithstanding the Order of Admission, filed OA No. 130/2019 before the Debt Recovery Tribunal (DRT) Mumbai for recovery of the debts against RCOM Entities including the present respondent and others for the total claim of Rs. 1428,05,80,961.25 (Rupees One Thousand Four Hundred Twenty-eight Crores Five Lakhs Eighty Thousand Nine Hundred Sixty-one and Twenty-five Paise). 6. One UV Asset Reconstruction Company Limited had submitted a Resolution Plan in the CIRP of RCOM while Reliance Digital Platform & Project Services Limited had submitted a resolution plan for RITL. The Resolution Professional has filed an Application IA No. 883/2020 for approval of the Resolution Plan by UV Asset Reconstruction Company, after the Committee of Creditors (CoC) of which the Applicant is a major player/component approved the Plan with 100% voting share. There is no urgency in the present Application to pass an Order under section 97 of the Code. The Resolution Plan of UV Asset Reconstruction Company should be able to disch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 7. The Tribunal has in certain cases taken the view that upon assignment of debts, the guarantees would cease to be enforceable by the assignor. The NCLAT has also in some cases taken the view that once the resolution process has been initiated against a corporate debtor then for the same debt a claim cannot be filed by the same financial creditor which would result in two separate insolvency resolution processes against the corporate debtor and against guarantor. These decisions are pending appeal. In any event, unlike resolution of corporate insolvency is, it is implicit in the creation of bankruptcy proceedings in respect of personal guarantees through a mechanism akin to the resolution of corporate insolvencies, that the two are carried out in sync thereby ensuring that the rights of guarantors would not be unnecessarily put in peril. Fairness in action would be imperative. This fairness is achieved in certain cases by putting personal bankruptcies in abeyance, when there is a serious prospect of the resolution of the corporate debt in the resolution process of the corporate debtors. 8. Under section 99 of the Code the Resolution Professional is required to submit the repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade in the Applications, allusion to certain provisions of the Code would be pertinent. It would accordingly be appropriate to refer to them. 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." 11. Section 60(2) of the Code provides that proceedings against the Personal Guarantor can simultaneously be filed. There is no quarrel at the Bar regarding the same. It is only submitted by the Respondent that in view of the pendency of the Resolution Plans the Petitions/Applications should not be proceeded with. When the law mandates that a particular proceeding can be init ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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)1 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." 13. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation is pending for adjudication and such Adjudicating Authority may give such directions for consolidating the proceedings under the applications as it thinks just; (4) An application under sub-section (1) shall be accompanies with details and documents relating to:- (a) the debts owed by the debtor to the creditor or creditors submitting the application for insolvency resolution process as on the date of application; (b) the failure by the debtor to pay the debt within a period of fourteen days of the service of the notice of demand; and (c) relevant evidence of such default or non-repayment of debt. (5) The creditor shall also provide a copy of the application made under sub-section (1) to the debtor. (6) The application referred to in sub-section (1) shall be in such form and manner and accompanied by such fee as may be prescribed. (7) The details and documents required to be submitted under sub-section (4) shall be such as may be specified." 16. Section 97(3), (4), (5) and (6) of the Code read as follows: "97. Appointment of resolution professional: (3) Where an application under section 94 and 95 is filed by the debtor or the creditor himself, as the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irect the IBBI to nominate the name of a Resolution Professional. This Authority can appoint one from the panel. Since on filing of the Petition interim moratorium under section 96 of the Code had set in, no other order in terms of prayer (b) of the Application can be passed. 18. Before parting it would be pertinent to note that, the Applicant under the Rupee Loan Facilities Agreement dated 29.08.2016, as amended and restated on 08.09.2016 provided the aforesaid amounts as loan to RCOM and RITL. The RCOM and RITL committed default in repayment in and around January 2017. The accounts were retrospectively declared as Non-Performing Account (NPA) with effect from 26.08.2016 i.e. even before loan agreements had been entered into. Such retrospective declaration seems rather incongruous, akin to the adage 'putting the cart before the horse'. While debt and default has remained undisputed, the incongruity of declaration of NPA, has not been raised and contested by the Respondent. Besides, reappraisal of the declaration of the NPA by this Authority would not fall within the ambit of the provisions of the Code, under which the instant Applications have been made. We herewith pass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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