TMI Blog2024 (4) TMI 539X X X X Extracts X X X X X X X X Extracts X X X X ..... by the same set of family member - it will be travesty of justice to even consider the arguments of the Appellant to treat the deed of guarantee as void just in order to avoid the financial obligations towards the consortium of lenders. In any case we also observe that at the best the Corporate Debtor was liable for punishment under Section 186 (13) of the Companies Act, 2013 and the Corporate Debtor is not entitled for any illegal enrichment for its own illegal and malafide acting. Lack of privity of contract between the Respondent No. 1 and the Corporate Debtor - HELD THAT:- Clause F of the deed of guarantee specifically provides that the Security Trustee acting for the benefit of the IDBI Consortium has called upon the Guarantor to execute this Guarantee in favour of the Security Trustee in favour of the Banks. This makes it clear that security trustee was to act for the benefit of IDBI Consortium consisting of all four lenders - when the trust is created for the benefit of the beneficiary parties party, such parties are no more strangers to the contract and can step in shoes, to pursue their legal remedies on their own rights - the corporate guarantor is liable to meet its fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... millers for which the Appellant has set up mills for milling wheat, gran and other grains and also engaged in the business of flours of all kinds. 5. It has been submitted that between 20.03.2014 to 13.04.2017, M/s. BP. Food Products Private Limited (in short Principal Borrower ) was granted various financial facilities worth Rs. 181.29 Crores by consortium banks comprising of IDBI Bank Ltd., State Bank of India, RBL Bank Limited (who later assigned loan to M/s. UVARC) and Kotak Mahindra Bank Limited ( in short Consortium of Lenders ). 6. It has been stated that against the said financial facilities, certain securities were executed and for this process, a security trustee agreement dated 10.06.2016 was executed between the Consortium of Lenders and IDBI Trusteeship Services Limited (in short Trusteeship ). 7. It has been informed that deed of guarantee dated 10.06.2016 was executed between the Corporate Debtor and the Trusteeship to secure the loan taken up the principal borrower from the Consortium of Lenders. 8. It has been submitted that the accounts of principal borrowers became over due on account of default and was declared NPA on 29.10.2019 therefore the Respondent No. 1 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly Rs. 5,79,43,959/- and therefore, the Corporate Debtor could have furnish the corporate guarantee of only Rs. 6.80 Crores (approximately) against the corporate guarantees given by the Corporate Debtor of Rs. 181.29 Crores. 16. The Appellant pleaded that based on Independent Auditor Report, the shareholders of the company specially Mrs. Chandra Prakash Bindal and Mr. Rakesh Bindal addressed a letter dated 04.10.2017 to the Directors of the Corporate Debtor showing their concern about such wrong corporate guarantees given by the Corporate Debtor. The Appellant also submitted that such corporate guarantee was given by the Corporate Debtor in haste due to constant pressure by the consortium of lenders. The Appellant also stated that the Corporate Debtor filed a petition before Regional Director, Ahmedabad on 10.10.2017 to declare a corporate guarantee given by them as null void. 17. The Appellant also placed on record that the Adjudicating Authority vide his order dated 26.05.2020 approved the Resolution Plan by M/s Om Shri Shubh Labh Agritech Private Limited for amount of Rs. 18,90,59,537/- for making payments to the secured financial creditors of the principal borrower including Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the Appellant that based on these relevant clauses, the Respondent No. 1 was required to convene meeting of all the lenders, to declare event of default and to communicate to the trusteeship for further necessary action and therefore the unilateral action taken by the Respondent No. 1 is in contravention of these agreements and therefore the Respondent No. 1 could not have filed any application under Section 7 of the Code. 24. It is further the case of the Appellant that in absence of valid event of default, the Respondent No. 1 could not invoke the corporate guarantee given by the Corporate Debtor or even file the Section 7 application against the Corporate Debtor . 25. The Appellant also pleaded that since there is no contract or agreement between the Respondent No. 1 and the Corporate Debtor, the Respondent No. 1 could not have invoked the corporate guarantee and cited the judgment of Vodafone International Holdings BV Vs. Union of India Anr. [(2012) 6 SCC 613] rendered by Hon ble Supreme Court of India where it was held that company is separate legal persona and in view of the invocation letter dated 04.04.2018 sent by the Respondent No. 1 to the Corporate Debtor was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.2023 and finally offered Rs. 1.85 Crore on 14.06.2023 vide Appellant letter dated 14.06.2023. 31. The Appellant alleged that no valid reasons have been submitted by the Respondent No. 1 in rejecting his offer of Rs. 1.85 Crores of OTS against the corporate guarantee given by him amount to Rs. 181.29 Crores, although legally the Corporate Debtor is not obliged to pay anything to the Consortium of Lenders for various reasons explained earlier. The Appellant further alleged that the Respondent No. 1 is under immense pressure from the other three lenders of the Consortium not to accept the OTS proposal from the Appellant. 32. Concluding his remarks, the Appellant submitted that the Impugned Order is illegal and perverse and has been initiated only to kill a running company under undue pressure of the Consortium of Lenders and requested this Appellate Tribunal to allow his appeal. 33. Per contra, the Respondent No. 1 denied all the averments made by the Appellant treating these to be misleading, mischievous, devoid of any merit and only to derail the process of resolution of the Corporate Debtor. 34. The Respondent No. 1 submitted that the Corporate Debtor is a group company of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholder/ promoters in respect of debts shall not be extinguished by virtue of this Resolution Plan and lenders will retain their rights and claims on the guarantee given by personal/ corporate guarantors of the principal borrowers. 39. The Respondent No. 1 elaborated dubious attempts of the Promoters including the Appellant herein in derailing the resolution process of the Corporate Debtor and the Adjudicating Authority dismissed of the objections taken by the Promoters and the CIRP was admitted on 01.12.2022 almost after four years of filing Section 7 application on 15.01.2018 and the same has now being challenged by the Promoters before this Appellate Tribunal on the various grounds including ground they have approached IDBI Bank for settlement (OTS). 40. As regards, so-called alleged settlement offer by the Appellant, the Respondent No. 1 submitted that against the corporate guarantee of Rs. 181.29 Crores and against the huge outstanding liability of the Corporate Debtor towards Respondent No. 1, the Corporate Debtor made a meagre offer of Rs. 1 Crore initially which was enhanced after four further offers to final offer of only Rs. 1.85 Crores which cannot be accepted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forced against the Corporate Debtor by the Respondent No. 1 is baseless. 46. The Respondent No. 1 also refuted the allegations regarding lack of privity of contract between the Respondent No. 1 and the Corporate Debtor and stated that it is a settled principals of law that a person for whose benefit the trust is created by a contract, the beneficiary (in present case the lenders) may enforced rights where the trust has been created for their benefits. 47. The Respondent No. 1 also cited the judgment of this Appellate Tribunal given in the case of Naresh Kumar Aggarwal Vs. CFM Asset Reconstruction Pvt. Ltd. passed in Company Appeal (AT) (Ins.) No. 470 of 2023 based on identical facts wherein it was held that the lenders are entitled to initiate and file an application under Section 7 of the Code despite there being a security trustee. 48. The Respondent No. 1 highlighted and emphasised that other lenders of the consortium i.e, State Bank of India, Kotak Mahindra Bank Limited, UVARC (earlier RBL Bank) also filed Interlocutory Applications for intervention in the present appeal i.e, Comp. appeal (AT) (Ins.) No. 1541 of 2022, whereas one of the prayer of proposed Intervenor Bank is dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 2013. (ii) Lack of privity of contract between the Respondent No. 1 and the Corporate Debtor. (iii) Only trusteeship could have initiated the application under Section 7 of the Code against the Corporate Debtor and not the lender/ Respondent No. 1. (iv) The Respondent No. 1 could not have initiated the action of its own of filing Section 7 application without the formal meeting held with other lenders and their consent and authorisation. (v) Financial viability of the Corporate Debtor and status of going concern based on the judgment of Vidharbha (Supra). (vi) The protection given to the corporate guarantor based on several documents including interse agreement, deed of guarantee and Security trustee agreement. 55. All these points are inter-connected and inter dependent and as such we shall examine all the issues raised by the Appellant in conjoint manner and shall dealt in following discussions:- (I) The deed of guarantee dated 10.06.2016 to be treated void in view of Section 186 of the Companies Act, 2013. ➢ As regard, the deed of guarantee dated 10.06.2016 being void of violation of Section 186 of the Companies Act, 2013, we would like to take into account the rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cept the intentions of the Appellant on this point. (II) Lack of privity of contract between the Respondent No. 1 and the Corporate Debtor. ➢ As regard lack of privity of contracts, we have to understand the context in which the deed of guarantee has been executed through independent trusteeship, in the present case through IDBI Trusteeship Services Limited (in short Trusteeship ). ➢ Normally for huge funding, the banks join hands and form a consortium of lenders, like in the present case, where four lenders formed a consortium of lenders and for smooth process. Consortium availed the facility of trusteeship who can act on their behalf. ➢ In this background, three agreements become the relevant in the present appeal, namely, interse agreement, Deed of Guarantee and Security Trustee Agreement. ➢ Interse agreement was signed amongst the IDBI Bank Ltd., State Bank of India, RBL Bank Limited and Kotak Mahindra Bank Limited and IDBI Trusteeship Services Limited to define the rights and obligations interse the lenders in the manner and as per conditions stipulated therein which was singed of 10.06.2016. ➢ The Security Trustee Agreement was also signed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he approval of resolution plan by the Adjudicating Authority as clearly stipulated in the Impugned Order. ➢ Through several judgments of the Hon ble Supreme Court and this Appellate Tribunal, the co-existence of the liability of the corporate guarantors and the principal borrower has been established. ➢ In this regard, the judgment has been rendered by the Hon ble Delhi High Court in the case of Madhav Trading Company vs. Union of India and others, ILR (1978) 2 Delhi 74, where the Hon'ble Delhi High Court held that: if the contract has the effect of creating a trust in favor of a third person such person may sue to have the obligation arising for his benefit fulfilled...... (Emphasis Supplied) In the case of Jnan Chandra Mukherjee VS Manoranjan Mitra And Ors., AIR 1942 Cal 251, the Division Bench of Calcutta High Court:- A stranger to a contract which reserves a benefit for him cannot sue upon it either in English or in Indian law even though in India the consideration need not move from the promisee. There are two well-recognised exceptions to this doctrine. The first is where a contract between two parties is so framed as to make one of them a trustee for a thir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a party to the contract his rights are equitable and not contractual... (Emphasis Supplied) ➢ Thus the lender is entitled to initiate and file application under Section 7 of the Code despite they have been engaged trusteeship. We also take into consideration relevant para in the matter of Naresh Kumar Aggarwal (Supra), which reads as under :- 13. Learned counsel for the Appellant further submits that the State Bank of India could not have been filed the Section 7 application because guarantee was executed by the Corporate Debtor in favour of SBICAP. SBICAP is Trustee Company on behalf of all the lenders. State Bank of India having assigned its debt to the Respondent No.1, it was open for the State Bank of India to exercise its rights as per the financial documents including Guarantee Deed. The guarantee executed by the Corporate Debtor in favour of SBICAP as Trustee Company of all six lenders, lenders has full entitlement to initiate proceedings under Section 7. As noted above, the Section 7 proceeding has already been initiated against another Guarantor i.e. Micro Stock Holding Pvt. Ltd., which order is still subsisting. We, thus, are of the view that argument of the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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