TMI Blog2023 (3) TMI 898X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the Apex Court was as to whether on admission of insolvency petition, the moratorium under Section 14 of the Code would apply to a personal guarantor of a Corporate debtor. While answering the said question, the Apex Court had considered different provisions of the Code and the effect of enforcement of Section 2(e) w.e.f 23.11.2017 by the Amendment Act, 2018. It was noted that under Part II of the Code which deals with insolvency resolution and liquidation for Corporate persons, a financial creditor or a Corporate debtor may make an application to initiate the insolvency resolution process. Once initiated, the adjudicating authority, after admission of such application, shall by order declare a moratorium for the purposes referred to in Section 14 (as per Section 13 of the Code). It was, thus, held therein that the object of the Code is not to allow personal guarantors such as Directors who are in management of the companies to escape from an independent and co-existent liability to pay off the entire outstanding debt. The decision in Sanjeev Shriya vs S.B.I [[ 2017 (9) TMI 1638 - ALLAHABAD HIGH COURT] ] wherein moratorium was applied to enforcement of guarantee against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30.06.2022 under Section 3 read with Section 5 of the U.P. Government Electrical Undertakings (Dues Recovery) Act, 1958, for recovery of electricity dues of the Company namely M/s Trimurti Concast Pvt ltd, a Company incorporated under the Companies Act, 1956. The petitioner herein is one of the two Directors of the aforesaid Company. Another Director Sri Ashok Sharma s/o Avtar Chand Sharma is also the noticee alongwith the petitioner herein, as indicated in the impugned notice itself. 3. The Company namely M/s Trimurti Concast Pvt ltd is in default of the dues of the respondent corporation and, as such, would be addressed as 'defaulter company' hereinafter. 4. The brief facts relevant to decide the controversy at hand are that on an application/petition filed by the M/s Ram Alloys Casting Pvt ltd under Section 7 of the Insolvency and Bankruptcy Code, 2016 (in short IB Code 2016) and the rules framed thereunder, the defaulter company went into insolvency. At the time of filing of the present petition, insolvency resolution process with respect to the defaulter company (which may also be mentioned as the 'Corporate debtor' hereinafter) had already been commenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the Insolvency Resolution plan approved by the NCLT is binding on the Corporate debtor as also all other Stakeholders. The moratorium period under Section 14 of the IB Code' 2016 began on 24.12.2019. With the order passed by the NCLT recognizing the respondent Corporation as Operational creditor for settlement of its claim in the proceedings under the IB Code 2016, all claims against the Coporate debtor stood extinguished. 9. It was further submitted that after filing of the present writ petition, the liquidation process has been initiated under Section 33 of the IB Code' 2016 and the distribution of assets of the defaulter company/Corporate debtor has been made in accordance with Section 53 of the IB Code, 2016 with the approval of the resolution plan as per the payment schedule provided therein. With the passing of the order dated 22.3.2022 by the NCLT, all the liabilities of the stakeholders mentioned in the resolution plan stood permanently extinguished. The waiver and reliefs, exemptions granted by the NCLT in the order dated 22.03.2022 have been placed before us to assert that after approval of the resolution plan, a creditor is prohibited from initiating pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on against the Corporate debtor in respect of its property. It was submitted that in the aforesaid case, the Apex Court has held that the bank could not have continued the proceedings under the SARFAESI Act, 2002 once the CIRP was initiated and the moratorium was ordered. 13. The decisions of the National Company Law Tribunal (NCLT) Allahabad and NCLAT New Delhi in Paschimanchal Vidyut Vitran vs Raman Ispat Pvt ltd and others dated 15.05.2019 have been placed before us to submit that once liquidation order has been passed under Section 33 against the Corporate debtor, the liquidator's duty is to form liquidation estate of the Corporate Debtor in terms of Section 36(1) of the IB Code to consolidate the claims of creditors in accordance with Section 38 of the Code and then distribute the proceeds of liquidated estate to the creditors in the order of priority prescribed under Section 53 of the Code. 14. In the aforesaid case before the NCLAT, the District Collector had issued notice for recovery of outstanding dues for supply of electricity by auction of movable and immovable properties of the Corporate debtor. On the plea taken therein with regard to the overriding effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Clause 4.3(f) and Clause 6.15 of the Electricity Supply Code, 2005 clearly empower the electricity department to issue recovery proceeding against the Directors of the Company and any payment due to the licencee Company can be recovered as arrears of land revenue as per the provisions of the U.P. Government Electrical Undertakings (Dues and Recovery) Act 1958, in accordance with the Clause 6.15 of the Electricity Supply Code, 2005. 19. Placing Annexure-'1' to the counter affidavit filed on behalf of the respondent nos.1 and 2, it was submitted that out of total outstanding dues of the Corporation against the defaulter company to the tune of Rs.9 crores and odd, only an amount of Rs.6,62,848/- has been directed to be distributed as per the approved resolution plan, under the order dated 22.3.2022 passed by the NCLT, Allahabad. 20. A copy of the letter dated 11.01.2018 of the Managing Director of the U.P. Power Corporation ltd has been placed before us to assert that the direction has been issued to Managing Directors of all the Discoms, to recover dues of electricity from the Director/owner of the defaulter company. It is vehemently argued that Clause 4.3 (f)(v) cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself and in view of the provision of Section 238 of the IBC, the provisions of Code will prevail notwithstanding anything inconsistent therewith contained in any other law for the time being in force. The Code is a beneficiary legislation intended to put the Corporate debtor back on its feet and is not a mere money recovery legislation. The CIRP (Corporate Insolvency Resolution Process) is not intented to be adversial to the Corporate debtor but is intended at protecting the interest of the Corporate debtor. It is no more res integra that the IB Code is a complete code- provisioning for actions and proceedings relating to, amongst others, reorganisation and insolvency resolution of Corporate persons in a time bound manner for maximisation of value of assets of such persons, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto. [Reference para-19 Laxmi Pat Surana vs Union of India and another reported in (2021) 8 SCC 481] 25. By the Amendment Act 8 of 2018 with effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irector of M/s Trimurti Concast Pvt ltd as the 'Consumer'. 31. The submission is that though the terms and condition of the agreement bound the 'Consumer' namely the defaulter company, but in view of the undertaking given by the Director of the Company, the signatory to the agreement on his affidavit, the Director became personal guarantor of the Corporate debtor, i.e the defaulter company namely M/s Trimurti Concast pvt ltd. 32. We may further note that the present petition has been filed by only one of the Directors of the defaulter company namely Narendra Singh Pawar seeking to challenge the entire demand notice jointly issued in the name of both the Directors of the Company under Section 3 read with Section 5 of U.P. Government Electrical Undertaking (Dues Recovery) Act, 1958. Another Director of the Company in whose name also the demand notice has been issued along with the petitioner herein, has not joined in the present petition for the reasons best known to him. However, the relief prayed herein is to set aside the entire demand notice dated 30.6.2022 issued jointly in the name of both the Directors seeking for Recovery of Electricity Dues of the defau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he corporate debtor any of its assets or any legal right or beneficial interest therein; (c)any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; (d)the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. 35. It was noted by the Apex Court in State Bank of India (supra) that in each of the matters referred to in the above noted prohibition, under Section 14, what is conspicuous by its absence is any mention of the personal guarantor. Indeed, the corporate debtor and the corporate debtor alone is referred to in the said Section. A plain reading of the said Section, therefore, leads to the conclusion that the moratorium referred to in Section 14 can have no manner of application to personal guarantors of a Corporate debtor (Reference paragraphs-'19' and '20'). 19. Under Part II of the Code, which deals with Insolvency Resolution and Liquidation for Corporate Persons , a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Tribunal, as contemplated under Part III of this Code, for the purposes of sub-section (2), would not take effect, as the Debt Recovery Tribunal has not yet been empowered to hear bankruptcy proceedings against individuals under Section 179 of the Code, as the said Section has not yet been brought into force. Also, we have seen that Section 249, dealing with the consequential amendment of the Recovery of Debts Act to empower Debt Recovery Tribunals to try such proceedings, has also not been brought into force. It is thus clear that Section 2(e), which was brought into force on 23.11.2017 would, when it refers to the application of the Code to a personal guarantor of a corporate debtor, apply only for the limited purpose contained in Section 60(2) and (3), as stated hereinabove. This is what is meant by strengthening the Corporate Insolvency Resolution Process in the Statement of Objects of the Amendment Act, 2018. 25. Section 31 of the Act was also strongly relied upon by the Respondents. This Section only states that once a Resolution Plan, as approved by the Committee of Creditors, takes effect, it shall be binding on the corporate debtor as well as the guarantor. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 is concerned, have also been noted in para-'32' as under:- 32. The Committee insofar as the moratorium under Section 14 is concerned went on to find: 5.9 A contract of guarantee is between the creditor, the principal debtor and the surety, where under the creditor has a remedy in relation to his debt against both the principal debtor and the surety [National Project Construction Corporation Limited v. Sandhu and Co., AIR 1990 P H 300]. The surety here may be a corporate or a natural person and the liability of such person goes as far the liability of the principal debtor. As per section 128 of the Indian Contract Act, 1872, the liability of the surety is co-extensive with that of the principal debtor and the creditor may go against either the principal debtor, or the surety, or both, in no particular sequence [ Chokalinga Chettiar v. Dandayunthapani Chattiar, AIR 1928 Mad 1262]. Though this may be limited by the terms of the contract of guarantee, the general principle of such contracts is that the liability of the principal debtor and the surety is co-extensive and is joint and several [Bank of Bihar v. Damodar Prasad, AIR 1969 SC 297]. The Committee noted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st a Corporate debtor. The Corporate debtor can be the principal borrower. It can also be a Corporate person assuming the status of Corporate debtor having offered guarantee, if and when the principal borrower/debtor commits default in payment of its debt. It was noted that indisputably a cause of action would enure to the lender (financial creditor) to proceed against the principal borrower, as well as the guarantor in equal measures in case, they commit default in repayment of the amount of debt acting jointly and severally. It would still be a case of default committed by the guarantor itself, if and when the principal borrower fails to discharge his obligation in respect of the amount of debt, for the obligation of the guarantor is coextensive and coterminus with that of the principal borrower to defray the debt, as predicated in Section 128 of the Contract Act. 41. In Lalit Kumar Jain vs Union of India and others reported in (2021) 9 SCC 321, the challenge was to the validity of the notifications dated 15.11.2019 issued by the Central Government, Ministry of Corporate Affairs as also the Insolvency and Bankruptcy (application) to adjudicating authority for Insolvency Resolu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lear that the sanction of a resolution plan and finality imparted to it by Section 31 does not per se operate as a discharge of the guarantor's liability. As to the nature and extent of the liability, much would depend on the terms of the guarantee itself. It was, thus, concluded in para-'125' as under:- 125. In view of the above discussion, it is held that approval of a resolution plan does not ipso facto discharge a personal guarantor (of a corporate debtor) of her or his liabilities under the contract of guarantee. As held by this court, the release or discharge of a principal borrower from the debt owed by it to its creditor, by an involuntary process, i.e. by operation of law, or due to liquidation or insolvency proceeding, does not absolve the surety/guarantor of his or her liability, which arises out of an independent contract. 45. In view of the above discussions, it is clear that approval of a resolution plan does not ipso facto absolve the surety/guarantor of his or her liability, which arises out of an independent contract of guarantee. To what extent, the liability of a guarantor can be pressed into service would depend on the terms of the guar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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