TMI Blog2020 (9) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... it till the resolution of RCOM or RITL is successfully accomplished and the debts of the corporate debtors have been satisfied, would be eristic. 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. Section 97(3) of the Code doesn't provide for any alternative or any option to the Adjudicating Authority to be tardy in making the direction to the Board. The use of the word 'shall' itself indicates the urgency with which the Application needs to be dealt with. The Authority accordingly has no other option than to issue the direction. The submissions made by the Respondents that this Authority could wait till the resolution of the Corporate debtors are completed accordingly cannot be accepted. Therefore, in our considered opinion we feel it appropriate to issue the direction in terms of Section 97(3) of the Code. Rule 8 of the I B (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors) Rules, 2019 provides that for the purposes inter alia of sub section (2) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.09.2016 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 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). 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. Despite various correspondence between the Financial Creditor and the Personal Guarantor (Respondent) no repayment was made on behalf of the Respondent. The Applicant apprehends that it would not be able to recover the claim amount from the CIRP or from the borrowers RCOM RITL. It accordingly issued a Demand Notice dated 20.02.2020 in Form-B to the Respondent demanding payment. The Notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Reliance Telecom Limited; b. Pledge over shareholding of Reliance Webstore Limited and Reliance IDC Limited; c. Corporate guarantee of RCIL, RCOM and Reliance Telecom Limited in respect of the RCOM Facility; and d. Corporate guarantee of RCIL, RCOM and Reliance Telecom Limited in respect of the RITL Facility. 5. Axis Trustee Services Limited was appointed as the security trustee for both the credit facilities. It was the understanding between the Financial Creditor and Personal Guarantor, at the time of execution of the Personal Guarantee deed dated 23.09.2016, that the Corporate Guarantee provided by RITL, Reliance Communications Infrastructure Limited, RCOM and Reliance Telecom Limited would be invoked before invoking the Personal Guarantee. The Personal Guarantee would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sional 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 discharge the entire financial debt of RCOM to the Applicant and other lenders. 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. The Applicant in all fairness should first realise and recover the amounts under the CIRP which the UV ARCIL seeks to satisfy and in case of any remainder it can proceed against the Respondent under personal guarantee. Even otherwise the recovery of RCOM through realization of the assets would be approximately INR Thirty-one Thousand Crores which is the entire secured debt and the amount re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 report to the Authority with reasons for acceptance or rejection of the Application. Since the Application for approval of the Resolution Plan is pending the RP could not file any report on the admissibility or otherwise of the Applications. Thus an order for appointing the Resolution Professional would be premature since the RP would not be able to determine, if any debt remained due from the Applicant. The credit facilities crystalized on the date of Admission Order (17.05.2018). Therefore, the claim of alleged dues of RCOM and RITL till 11.03.2020 is not maintainable. No case is made out by the Applicant to restrict the Respondent from dealing with his assets. The Respondent would be subjected to grave prejudice, irreparable loss, injury and loss of reputation in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 initiated, it would be preposterous to think that after initiation of the proceedings the Authority, before whom it is filed, would not act upon such Petition/Application and would not do anything about it until some subsequent event happens. Had that been the intention of the Legislature, a provision for initiation of proceedings wouldn't have been made in the first place. Therefore, it would be fallacious to assume that though the proceedings can be filed no action can be taken until the Resolution Plan(s) is/are accepted or otherwise. The natural and legal consequence of filing of a Petition/Application would be that the Authority before whom it is filed shall take all possible steps according to law that would follow as per the procedure prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 on the liability of the guarantor. The principle thus laid down applies on all fours to the case at hand. 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. 14. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 may be, and not through the resolution professional, the Adjudicating Authority shall direct the Board, within seven days of the filing of such application, to nominate a resolution professional for the insolvency resolution process. (4) The Board shall nominate a resolution professional within ten days of receiving the direction issued by the Adjudicating Authority under sub-section (3). (5) The Adjudicating Authority shall by order appoint the resolution professional recommended under sub-section (2) or as nominated by the Board under sub- section (4) (6) A resolution professional appointed by the Adjudicating Authority under sub-section (5) shall be provided a copy o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 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 the following order. ORDER Both the IAs numbering IA Nos. 1009 of 2020 and 1010 of 2020 be and the same are allowed in part on contest. Prayer (a) made in both the Applications are allowed as follows. Mr. Jitender Kothari (IBBI/IPA-001/IP-P00540/2017-2018/10965), email: jitenderkothari@rediffmail.com is appointed 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. The Applicant shall take necessary action under Rule 9 thereof. The Deputy Registrar of this Tribunal shall forthwith inform the RP of the order. Pray ..... X X X X Extracts X X X X X X X X Extracts X X X X
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