National Company Law Appellate Tribunal
Anil Bhargava vs Axis Bank Limited & Anr on 28 February, 2023
NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH,
NEW DELHI
Company Appeal (AT) (Insolvency No. 685 of 2021
[Arising out of order dated 16.08.2021 passed by the Adjudicating Authority
(National Company Law Tribunal, Ahmedabad Bench Court 1) in CP (IB) No.
141/7/NCLT/AHM/2019 with IA 513 of 2019]
IN THE MATTER OF:
Anil Bhargava
Director of the Suspended Board of
Directors of Corporate Debtor /
Avantha Power and Infrastructure
Limited C-2/5, 3rd Floor, Vasant Vihar,
Delhi-110057.
....... Appellant.
Versus
1. AXIS BANK LIMITED
Through its Director, Registered Office at
Trishul, 3rd Floor, Opp: Samartheswar Temple
Near Law Garden, Ellisbridge, Ahmedabad-
380006.
...... Respondent No. 1.
(Financial Creditor)
2. SRIKANTH DWARKANATH
Interim Resolution Professional of Corporate
Debtor / Avantha Power and Infrastructure
Limited, Thapar House, 124, Janpath, New
Delhi-110001.
...... Respondent No. 2.
(Corporate Debtor)
2
Present:
For Appellant: Mr. Diwakar Maheshwari and Mr. Shreyas Edupuganti,
Advocates.
For Respondents: Mr. Gaurav Mitra, Mr. Kartik Nagarkatti, Ms. Lavanya
Pathak and Ms. Prakriti Joshi, Advocates for R-1.
Mr. Dhiraj Mhetre, Mr. Sanampreet Singh, Mr. Arpit
Choudhary, Ms. Sniti Tevari, Advocates for R-2.
JUDGMENT
(28th February, 2023) Justice Anant Bijay Singh;
The instant Appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 (for short IBC) has been preferred by the Appellant being aggrieved and dissatisfied by the order dated 16.08.2021 passed by the Adjudicating Authority (National Company Law Tribunal, Ahmedabad Bench Court 1) in CP (IB) No. 141/7/NCLT/AHM/2019 with IA 513 of 2019 whereby petition under Section 7 of the IBC filed by Respondent No. 1 (herein) - Axis Bank Limited/Financial Creditor against the M/s Avantha Power and Infrastructure Limited/Corporate Debtor was admitted by the Adjudicating Authority and further I.A. No. 513 of 2019 filed by the Corporate Debtor as regard to malicious initiation of CIRP against the Corporate Debtor in filing of application under Section 7 of the IBC, was also dismissed.
2. The facts giving rise to the instant Appeal are as follows:
i) The financial facilities availed by Kobra West Power Company Limited ("Principal Borrower-Kobra") proposed to set up a 2x600 MW Thermal Power Plant Company Appeal (AT) (Ins.) No. 685 of 2021 3 ("the Project") in the Ste of Chhattisgarh. To part finance the Project, the Principal Borrower had availed the following financial facilities from consortium of lenders led by the Respondent No. 1 (who was also acting as a security trustee):
• Rupee loan facility aggregating to Rs. 2150,00,00,000 by entering into a Common Rupee Loan Facility Agreement dated 24.06.2009 ("Rupee Loan Facility I");
• Additional facility aggregating to Rs. 193,00,00,000 by entering into an Addendum on 18.06.2013 to the Rupee Loan Facility I ("Incremental Debt Facility");
• Rupee loan facility aggregating to Rs. 315,45,00,000 by entering into Addendum II on 24.06.2009 to Rupee Loan Facility I and Deed of Accession dated 18.05.2015 ("Rupee Loan Facility II"), and; • Working Capital Facility aggregating to Rs. 446,90,00,000 ("Working Capital Facility").
ii) The Deeds of Corporate Guarantee executed by Corporate Debtor - APIL. The APIL acted as a Corporate Guarantor in respect of two out of the aforesaid four financial facilities namely:
• Incremental Debt Facility: The Corporate Debtor-APIL entered a Deed of Corporate Guarantee dated 18.06.2013 with the Respondent No. 1. • Rupee Loan Facility II: The Corporate Debtor-APIL entered a Deed of Corporate Guarantee dated 28.04.2015 with Respondent No. 1, which was subsequently superseded on 18.05.2015 by executing an Amended and Restate Deed of Corporate Guarantee.
Company Appeal (AT) (Ins.) No. 685 of 2021 4
iii) In view of the defaults committed by Principal Borrower, its Board of Directors resolved to initiate Corporate Insolvency Resolution Process under Section 10 of the Code. Accordingly, the Principal Borrower filed CP 190 of 2018 on 21.05.2018 before the Adjudicating Authority. As evident from Annexure 6 of the said CP 190 of 2018, the Principal Borrower had also listed about it committing default in repaying under both the said facilities (i.e., Incremental Debt facility and Rupee Loan Facility-II), for which the Corporate Debtor-APIL has stood as the Corporate Guarantee.
iv) During the pendency of the Principal Borrower's CP 190of 2018, the Respondent No. 1 issued Loan Recall and Invocation 05.06.2018 to the Principal Borrower and the Corporate Debtor-APIL:
• In so far as the Principal Borrower is concerned, the Respondent No. 1 recalled the principal amount of INR 2459.80 crores being the outstanding as on 30.04.2018 under all the four facilities, namely, Rupee Loan-I Facility, Incremental Debt Facility, Rupee Term Loan-II Facility and Working Capital Facility; and • In so far as the Corporate Debtor-AIPL is concerned, the Respondent no. 1 invoked both the guarantees under Incremental Debt and Rupee Loan Facility-II and raised a demand for Rs. 480.54 crores being the amount allegedly outstanding.
v) After issuing the aforesaid Invocation Notice, the Respondent No. 1 filed its written submissions on 12.06.2018 stating that it has no objection to the admission of CP 190 of 2018.
Company Appeal (AT) (Ins.) No. 685 of 2021 5
vi) The Corporate Debtor-APIL issued its reply to the Invocation Notice on 04.07.2018 and rejoinder of Respondent stating inter alia as follows:
• That the sum of INR 480.54 crores demanded from Corporate Debtor-APIL in Schedule 3 of the Recall Notice forms part of the amount sought to be restructured by principal Borrower in CP 190 of 2018. • That there exists no independent and separate default qua Corporate Debtor- APIL in view of the fact that in terms of CP 190 of 2018 the default under both the facilities (for which the Corporate Debtor stood as a guarantor) is already being sought to be restructured.
• Future of all stakeholders of Principal Borrower depends on outcome of CP 190 of 2018, the admission of which was not opposed by Respondent No. 1.
Thus, the Invocation Notice is premature, contrary to law and not maintainable.
vii) The Adjudicating Authority by its judgment and order dated 26.07.2018 admitted CP 190 of 2018 filed by Principal Borrower under Section 10 of the Code. Para 13 of the Admission Order makes it clear that the entire outstanding amount of Principal Borrower, which includes the defaulted amount under the Incremental Debt and Rupee Term Loan II facility (for which the Corporate Debtor-APIL had given guarantee) was admitted into CIRP for restructuring.
viii) Concealing the aforesaid developments, the Respondent No. 1 (in its capacity as security trustee) with a malafide and fraudulent intention, filed CP 141 of 2019 against Corporate Debtor-APIL on 30.01.2019 basis the same two corporate guarantees Incremental Debt Facility and Rupee Term Loan II Facility (for which Company Appeal (AT) (Ins.) No. 685 of 2021 6 CIRP had already commenced against the Principal Borrower, as evident from above). This CP 141 of 2019 was filed for an alleged default of INR 521,27,66,012.95 (as on 26.07.2018). In the filing, the Respondent No. 1 concealed the following material facts:
• That the alleged amount of default in the present CP 141 of 2019 already formed part of CP 190 of 2019 (filed by the Principal Borrower under Section 10 of the Code), resolution of which had already commenced on 26.07.2018.
• That the Respondent No. 1 and other lenders of Principal Borrower filed their claims before the IRP of Principal Borrower (which includes the amounts for which CP 141 of 2019 was filed against the Corporate Debtor-APIL) and such claims were admitted full by the IRP.
In spite regular request being made by the Corporate Debtor-APIL before the Adjudicating Authority, the Respondent No. 1 did not place on record the said claim forms filed before the IRP of Principal Borrower.
ix) Around April/May, 2019, the CoC of the Principal Borrower (which includes the Respondent no. 1) approved the resolution plan received in favour of the Principal Borrower from the Resolution Applicant-Adani Power by 69.08% present and voting. In view thereof, the Resolution Professional of Principal Borrower filed before the Adjudicating Authority I.A. No. 236 of 2019 in CP 190 of 2018 seeking approval of the resolution plan submitted by the Resolution Applicant in favour of Principal Borrower. Thereafter, the Adjudicating Authority approved the resolution plan of Resolution Applicant. In which para 9 of the approval order reflects that a restructured sum of INR 1,100 crores is provided under the resolution plan against Company Appeal (AT) (Ins.) No. 685 of 2021 7 the total admitted Secured Financial Creditors' claims of INR 3,346.83 crores. Admittedly, INR 3,346.83 crores includes the original defaulted amount under the Incremental Debt Facility and Rupee Term Loan II Facility.
x) Further case is that the Adjudicating Authority had incorrectly recorded at para 1 of the Impugned Order that Corporate Debtor-APIL had been delaying the proceedings. The fact that the CP 141 of 2019 itself is not maintainable in law and in fact, the impugned order is otherwise bad in law since the same has been passed without hearing the Corporate Debtor-APIL and without considering the submissions made by the Corporate Debtor-APIL in its Reply and written submissions. The Corporate Debtor-APIL was admittedly deprived of an effective hearing before the Adjudicating Authority.
3. The Ld. Counsel for the Appellant during the course of argument and in his memo of appeal along with written submissions submitted that the sole premise of the impugned order that CP 141 of 2019 was filed by Respondent No. 1 for the balance amount is factually incorrect. Paragraph 7 of the impugned order whereby the Adjudicating Authority in incorrect and contrary to record in view of the following:
• The finding that Financial Creditor is not seeking recovery of amount which has already been recovered under resolution plan. CP 141 of 2019 was filed (for the Original Default) on 30.01.2019 i.e. much prior in time to the order dated 24.06.2019 approving the resolution plan of Principal Borrower. Hence, Respondent no. 1 could not have filed CP 141 of 2019 for the unrecovered / balance amount.
Company Appeal (AT) (Ins.) No. 685 of 2021 8 • The above fact is also evident from the contents of aforesaid CP, wherein there is no mention that the petition was filed by Respondent No. 1 qua the balance amount that remained post the resolution plan of Principal Borrower.
• The aforesaid CP was filed for the identical debt which stood resolved by way of the resolution plan.
4. It is further submitted that the finding that Corporate Debtor did not controvert the submission of Respondent No. 1 that CP 141 of 2019 does not seek recovery of amount which has already been recovered. In this regard, the Corporate Debtor has always controverted the above submission of Respondent No. 1 at paragraphs no. 35 to 39 of its Reply to aforesaid CP and also paragraphs no. 5, 7, 9, to 11 of the written submission. The above clearly evidences that the finding of the Adjudicating Authority is contrary to record. Further, the finding that Corporate Debtor has pleaded in case the petition is admitted, the liability must be restricted to balance amount. The above finding is also contrary to record as it has always been the consistent case of the Corporate Debtor that aforesaid CP ought to be dismissed as the balance amount is neither determined nor disclosed by the Respondent No. 1. In view of the above, the premise on which the impugned order came to be passed is factually incorrect.
5. It is further submitted that the Adjudicating Authority has erred by ignoring its duty to determine the existence of default. The Liability of a Guarantor (such as the Corporate Debtor) depends on the terms of the Guarantee Agreement. It is well- established law that upon the approval of the Resolution Plan, while the liability of Company Appeal (AT) (Ins.) No. 685 of 2021 9 the guarantor / surety does not get automatically discharged, the said liability is limited to the extent of the balance recoverable / remaining amount of default. In the above context, the Supreme Court in "Lalit Kumar Jain v. Union of India, 2021 SCC Online SC 395" at para 122, has therefore, stated as follows:
"122. It is therefore, clear 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. However, this court has indicated, time and again, that an involuntary act of the principal debtor leading to loss of security, would not absolve a guarantor of its liability."
Further, under the terms of the Guarantee Agreement, the Corporate Debtor is discharged upon achievement of Final Settlement Date. Clause 2.7 of the Guarantee Agreements read as follows:
"Without derogation of the foregoing, in the event of default on the part of the Borrower in payment and/or performance of any of the Secured Obligations or any part thereof, or in the event of any default/breach of any of the terms, conditions and covenants contained in the respective Facility Agreement and/or other Finance Documents till the Final Settlement Date, the Guarantor shall, upon a written demand made by the Security Trustee for the benefit of the Incremental Facility Lenders, without demur, pay all amounts of the Secured Obligations payable by the Borrower under the respective Facility Agreement and Finance Documents to the extent of Corporate Guarantee. ..."
'Final Settlement Date' as appearing in the Guarantee Agreements derives its definition from the Common Rupee Loan Facility Agreement dated 24.06.2009, wherein it is defined as follows:
Company Appeal (AT) (Ins.) No. 685 of 2021 10 "Final Settlement Date" shall mean the date on which all the obligations of the Borrower under this Facility Agreement and other Finance Documents or arising out of the commitments and agreements made by the Borrower under or pursuant to this Facility Agreement and/or other Finance Documents shall have been irrevocably and unconditionally paid and discharged in full to the satisfaction of the Senior Lenders;"
With respect to all the obligations of the Borrower-Korba, as appearing in the definition of 'Final Settlement Date', Clause 10.3 of the Resolution Plan states as follows:
"Binding Effect ... Each Creditor acknowledges that implementation of the Resolution Plan shall be the full and final settlement of dues owed to it by the Corporate Debtor under any law or contract, and waives any rights, interests or causes of action may have against the Corporate Debtor under any law or contract."
In view of the above Clause 10.3 in the Resolution Plan which is binding on the Respondent No. 1, all the obligations of the Principal Borrower under any law or contract stands fully and finally settled. However, the above facts have been ignored by the Adjudicating Authority in the Impugned Order and there has been no finding / adjudication in this regard.
6. It is further submitted that without prejudice, the liability of the Guarantor, if any, is limited to the balance amount remaining post approval of Resolution Plan, which is neither disclosed nor determined by Respondent No. 1. in the event the Principal Borrower enters CIRP and a Resolution Plan has been approved in its Company Appeal (AT) (Ins.) No. 685 of 2021 11 favour, the claim of the creditors against the Guarantee is strictly limited to the balance outstanding, that too in terms of the Guarantee Deed executed between parties. This position in law is succinctly explained by the Hon'ble Calcutta High Court in the case of "Gouri Shankar Jain v. Punjab National Bank 2019 SCC Online Cal 7288", has therefore, stated as follows:
"26. ... Such Resolution Plan may be approved by the financial creditor in the meeting of the committee of creditors. Would such an approval mean that, the financial creditor entered into a composition with the corporate debtor, thereby impairing the rights of the financial creditor to recover the balance amount from the guarantor of the corporate debtor? In my view, the answer is in the negative."
Further, in this regard, it is submitted that the term 'Balance Guaranteed Financial Creditor Debt' is defined at paragraph 1.2 (d) (i) of the Resolution Plan as follows:
"(d) Admitted Financial creditor Debt reduced by Upfront Admitted Financial Creditor Debt Repayment, Restructured Debt, Restructured Subordinate Debt and additional financial debt accrued in the books of the Corporate Debtor as on the Effective Date (other than the Necessary Bank Guarantees) (collectively the "Balance Financial Creditor Debt") shall be dealt with as follows:
(i) debt that is secured by personal guarantee, corporate guarantee or any contractual comforts issued by any third party and constituting part of the Balance Financial Creditor Debt ("Balance Guaranteed Financial Creditor Debt") shall be assigned / novated to or acquired by the Resolution Applicant and / or its Affiliate for an amount equal to Consideration for Balance Guaranteed Financial Creditor Debt Assignment on the same Company Appeal (AT) (Ins.) No. 685 of 2021 12 terms and conditions, and in a form and manner satisfactory to the Resolution Applicant ("Balance Guaranteed Financial Creditor Debt Assignment"). It is clarified that any servicing of the Balance Guaranteed Financial Creditor Debt by the Corporate Debtor will not be carried out without the prior approval of the Secured Financial creditors till the time any portion of the Restructured Debt remains outstanding. It is further clarified that the contractual comforts and guarantees issued by any third party and any security interest in relation to the Balance Guaranteed Financial Creditor Debt will not get assigned to the Resolution Applicant and / or its nominee and will continue to accrue to the assigning Financial Creditors. The terms of novation, assignment or acquisition of such debt by the Resolution Applicant or any other eligible entity shall be with regard to all relevant commercial and other considerations. It is clarified that post the Balance Guaranteed Financial Creditor Debt Assignment, the Balance Guaranteed Financial Creditor Debt (other than Necessary Bank Guarantees) shall be restructured on such terms as the Resolution Applicant and / or its nominee and the Corporate Debtor, may deem fit, having regard to all relevant commercial and other considerations."
Further, paragraph 3.4.7 of the Resolution Plan states as follows:
"3.4.7 Notwithstanding anything contained in this Resolution Plan and without prejudice to Clause 3.4.4, any assignment of the Balance Guaranteed Financial Creditor Debt Assignment or extinguishment or restructuring of any financial liability of the Corporate Debtor will not result in the extinguishment of any claims that the Resolution Applicant and / or any the Financial Creditor may have against Avantha Group and/or its affiliates Company Appeal (AT) (Ins.) No. 685 of 2021 13 and/or any Third Party Security Provider under any contractual arrangements and/or as a result of any Credit Enhancements issued by the Avantha Group and/or its affiliates or such Third Party Security Provider. Further, notwithstanding anything contained in this Resolution Plan, it is hereby clarified that all the liabilities of the Corporate Debtor and/or any Third-Party Security Provider in respect of Necessary Bank Guarantees, are not settled, extinguished, disputed or released in any manner whatsoever either on account of the Resolution Plan being approved."
In view of the foregoing, the extent of liability of the Corporate Debtor, if any, is expressly limited to the 'Balance Guaranteed Financial Creditor Debt' which remains under the Incremental Debt and Rupee Term Loan II facility pursuant to receipt of sums by the lenders under the Resolution Plan. However, since Respondent No. 1 has not yet disclosed such "balance amount", the CP 141 of 2019 ought to have been dismissed. The above submission of Corporate Debtor has also been ignored by the Adjudicating. In this regard, the Corporate Debtor has relied on the decision of the Hon'ble Supreme Court in "Innoventive Industries Ltd. v. ICICI Bank & Anr., (2018) 1 SCC 407", wherein it was held as follows:
"30. ... the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is "due"
i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating Company Appeal (AT) (Ins.) No. 685 of 2021 14 authority that the adjudicating authority may reject an application and not otherwise."
Further, the Corporate Debtor has relied on the decision of "Punjab National Bank Limited v. Shri Vikram Cotton Mills and Anr., 1970 (1) SCC 60" wherein the Hon'ble Supreme Court held that determining the exact extent of the liability of a guarantor is vital before a decree is passed against a guarantor:
"12. ... By Clause 4 it is expressly stipulated that the bond secured "the ultimate balance" remaining due to the Bank. Therefore, unless and until the ultimate balance is determined no liability on Ranjit Singh to pay the amount arises, and it is common ground that the ultimate balance due is not determined. The suit was filed for a decree for Rs. 2,56,877/12/6, but the claim against Ranjit Singh could be decreed only for the amount remaining due as the ultimate balance under Clause 4 and 5 of the bond"
Despite pleading the above law, the Adjudicating Authority has ignored to consider the same.
7. It is further submitted that the standard of examination of default, as adopted by the Adjudicating Authority, is erroneous and reflects non-application of mind. The impugned order has been passed in gross violation of the principles of natural justice as the impugned order has been passed by the Adjudicating Authority without providing an opportunity of hearing to the Corporate Debtor. As evident from the Order dated 03.08.2021, the hearing in the matter was interrupted due to a technical glitch. However, the Adjudicating Authority has proceeded to reserve its judgment on the said date. Notwithstanding the above, the Company Appeal (AT) (Ins.) No. 685 of 2021 15 Adjudicating Authority has recorded, at paragraph 1 of the Impugned Order, various incorrect facts regarding the procedural history, which has been duly responded to by the Appellant at paragraph 7.16 of the Appeal and, the contents thereof are not repeated here for brevity.
8. The Ld. Counsel for the Respondent No. 1 / Axis Bank during the course of argument and in his Reply along with written submissions/additional written submissions submitted that the Appellant before this Tribunal as also before the Adjudicating Authority are premised on the basis that debt of the Corporate Debtor stands fully discharged pursuant to the Resolution Plan of the Principal Borrower. However, for the following reasons, the said contention is contrary not only to the approved Resolution Plan but also to the Deeds of Guarantees entered into by the Corporate Debtor:
• Clause 11.1 of the Deeds of Guarantees executed by the Corporate Debtor, provides that the same are continuing guarantees and "shall not be wholly or partially satisfied or exhausted by any payments made to or settled with the Security Trustee by the Borrower". Further, Clause 8.1. and 8.2. of the said Guarantees, which relate to the 'Rights of the Security Trustee', provide that " ..... the Security Trustee shall be at liberty to require the performance by the Guarantor of its obligations hereunder to the same extent in all respects as if the Guarantor had at all times been solely liable to perform the said obligations subject to the terms and conditions of this Deed." and in order to give effect to the Guarantees, the Security Trustee may act as though the Guarantor is the Principal Debtor to the Security Trustee. Further, the Company Appeal (AT) (Ins.) No. 685 of 2021 16 liability of the Guarantor in the form of the Corporate Guarantee, as per Clause 13 .1 and 13 .2 of the deeds, is irrevocable and is not to be affected by "(vii) any contract, deed or writing made between the Security Trustee and the Borrower by which the Borrower is in any way released or excused; or (viii) by any act or omission or waiver of the Security Trustee, the legal consequences of which may be a discharge of the borrower." • Thus, from a bare reading of the Deeds of Guarantee, it is ex-facie clear that neither the insolvency of the Principal Borrower nor the release, excuse, or discharge of the Principal Borrower, without complete payment of the amounts guaranteed, is to affect the liability of the Corporate Debtor under the Guarantees or discharge it of its obligations thereunder in any way at all. In fact, the Corporate Debtor is required to perform its obligations as if it has at all times been solely liable to perform its obligations under the Guarantees. It is only upon complete repayment of the amounts guaranteed that the Corporate Debtor will stand discharged of its obligations. Thus, the entire premise of the Corporate Debtor's case is completely contrary to the terms of the Deeds of Guarantee.
• Further, the Deeds of Guarantee were invoked by Respondent No. 1 on 05.06.2018, i.e., prior to the order dated 26.07.2018 passed by the Ld. Adjudicating Authority in the Principal Borrowers' Section 10 Petition and prior to the Resolution Plan of the Principal Borrower being approved. Thus, on the date of the invocation of the Guarantees by Respondent No. 1, the debt of the Corporate Debtor in its capacity as the Guarantor of the Principal Company Appeal (AT) (Ins.) No. 685 of 2021 17 Borrower had crystallized. However, despite being aware of the above facts, the Corporate Debtor did not make any claims against the Principal Borrower before the IRP, for any claims, that it may have against the Principal Borrower for the guaranteed debt. Thus, the Corporate Debtor owing to its own failure to make any claims against the Principal Borrower, cannot today dispute its liability and defeat the claims of Respondent No. 1 and the Consortium Lenders.
9. It is further submitted that the Resolution Plan of the Principal Borrower (at page 269 of the Appeal), as approved by the Ld. Adjudicating Authority, under Clause 3.4.7 provides, without any ambiguity, that "....any assignment of the Balance Guaranteed Financial Creditor Debt Assignment or extinguishment or restructuring of any financial liability of the Corporate Debtor will not result in the extinguishment of any claims that the Resolution Applicant and/or the Financial Creditors may have against the Avantha group and/or its affiliates and/or any Third party Security Provider under any contractual arrangements and/or as a result of any credit enhancements issued by Avantha group and/or its affiliates or such Third party Security Provider." In this regard, the Resolution Plan explicitly defines 'Avantha Group' as being the Corporate Debtor herein or any of its affiliates.
• Under the Resolution Plan, the Balance Guaranteed Financial Creditor Debt, i.e., an amount of Rs.840.71 crore {Admitted Financial Creditor Debt of Rs.5032.18 crore reduced by Upfront Admitted Financial Creditor Debt Repayment of Rs.100 crore, Restructured Debt of Rs. 1000 crore, Restructured Subordinated Debt of Rs.1685.35 crore and additional Company Appeal (AT) (Ins.) No. 685 of 2021 18 financial debt of Rs.1406.12 accrued in the books of the Corporate Debtor as on the IBC admission date), remains outstanding in the books of the Principal Borrower as on date. The said Balance Guaranteed Financial Creditor Debt of Rs. 840.71 crore, a sum of approximately Rs. 521.27 crores are guaranteed by the Corporate Debtor under the three Deeds of Guarantee and it is exclusively for this guaranteed amount that the Section 7 Petition had been filed by Respondent No. 1.
• From a conjoint reading of the Guarantees and the Resolution Plan, it is evident that the amounts guaranteed under the Deed of Guarantees executed by Corporate Debtor, had been kept out of the purview of the Resolution Plan and that any discharge or release to the Principal Borrower would not affect the obligations of the Corporate Debtor under the Guarantees. Accordingly, the Corporate Debtor, in law, is bound by terms of the Resolution Plan as approved by the Adjudicating Authority vide its Judgment/Order dated 24.06.2019.
10. Further submitted that guarantee a separate and independent contract;
a) A contract of guarantee is a separate and independent contract and the essence of Section 60 of the IBC, 2016 is to enable simultaneous proceedings to be filed against the Principal Borrowers and Guarantors. The Hon'ble Supreme Court has held in "Lalit Kumar Jair. V. UOI, (2021) 9 sec 321", that ".....approval of a resolution plan of a Principal Borrower 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 Company Appeal (AT) (Ins.) No. 685 of 2021 19 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." In view of the settled position in law, there is absolutely no aversion under the Code to simultaneous proceedings against the Principal Borrower and the Corporate Guarantor.
b) Accordingly, since under the Resolution Plan of the Principal Borrower (as also recorded in the order dated 24.06.2019), the Secured Financial Creditors are to receive only 32.84% of the total amounts due and payable to them and especially since the Resolution plan has categorically kept the Deeds of Guarantees executed by the Corporate Debtor outside its purview~ Respondent No. 1 was at complete liberty to file the Section 7 Petition against the Corporate Debtor and the Impugned Order passed by the Ld. Adjudicating Authority deserves no interference.
11. Further submitted that Determination of the existence of default;
a) The Appellant has also contended that the impugned order is to be set aside since the Adjudicating Authority has failed to determine the existence of default. It is in this regard submitted that under the Code, upon being satisfied that the default of the Corporate Debtor is above the minimum threshold of Rs. 1 crore, the Adjudicating Authority has to admit the Company Petition and initiate the CIRP. It is thereafter the duty of the IRP to invite claims of all Creditors, to verify and collate the same. In fact, the same has been upheld by this Tribunal in "Subhash Agarwal v. M/s. AU Small Finance Bank Ltd. & Ors., Company Appeal (AT) (Ins.) No. 271 of 2020" wherein, whilst upholding the order of the Adjudicating Authority it was Company Appeal (AT) (Ins.) No. 685 of 2021 20 held that the question that is required to be considered by the Adjudicating Authority is if the financial debt was due and the default was above the minimum threshold, and that any grievance that the Corporate Debtor may have on the calculation with regard the amount outstanding, can be looked into by the Resolution Professional in the CIRP.
b) Thus, in light of the settled position of law, since the default by the Corporate Debtor has duly quantified in the Section 7 Petition and since the same is above the minimum threshold of Rs. 1 crore, the Appellant's submission is contrary to law and cannot be a ground for any interference with the Impugned Order. In any event, it was only at the request of the Corporate Debtor that it's the liability should be restricted to recover the balance amount only, did the Adjudicating Authority hold that the same can be resolved in the CIRP, since it is the duty of the Insolvency Resolution Professional to verify and collate the claims.
12. During the pendency of the said Section 7 Petition, the Adjudicating Authority in the Section 10 Petition filed by the Principal Borrower, by an Order dated 24.06.2019 (Annexure-E, at page 126 to 147 of the Reply by the Respondent No. -1), approved the Resolution Plan as approved by the Committee of Creditors. The said order sets out a list of Financial Creditors which includes Respondent No. 1 and the 13 members of the Consortium, thus evidencing the fact that the Principal Borrower had admitted its liability owed to Respondent No. 1.
13. The Ld. Counsel for the Respondent No. 2/Interim Resolution Professional has filed the Affidavit in which he has stated that upon scrutinising the claims submitted by various Financial Creditors, as on 08th September, 2021 the following Company Appeal (AT) (Ins.) No. 685 of 2021 21 claims of the Financial Creditors have been admitted for the purpose of forming the COC:
Sr. Financial Amount Claimed Amount Admitted Voting No. Creditors Shar4e (In percent age) 1 Axis Bank Limited 5470829057 1,25,91,02,503.43 26.48 2 Bank of India 508604260.42 21,91,02,503.43 4.61 3 State Bank of 16899284 1,68,99,284.00 0.36 India 4 UCO Bank 4814296425.3 97,85,191.19 0.21 5 Rural 5771143007 3,25,00,00,000.00 68.35 Electrification Limited Total 16,58,17,72,033.7 4,75,48,89,482.00 100 2
14. After hearing the parties and going through the pleadings made on behalf of the parties, we are fully in agreement with the reasons assigned by the Adjudicating Authority at paragraphs no. 6 and 7 of the impugned order. Keeping in view the aforenoted facts, we do not find any merit in the Appeal to interfere with the order impugned passed by the Adjudicating Authority. The impugned order dated 16.08.2021 passed by the Adjudicating Authority (National Company Law Tribunal, Ahmedabad Bench Court 1) in CP (IB) No. 141/7/NCLT/AHM/2019 with IA 513 of 2019 is hereby affirmed. For all the aforenoted reasons, the instant Appeal is hereby dismissed. No order as to costs.
Company Appeal (AT) (Ins.) No. 685 of 2021 22
15. Registry to upload the Judgment on the website of this Appellate Tribunal and send the copy of this Judgment to the Adjudicating Authority (National Company Law Tribunal, Ahmedabad Bench Court 1), forthwith.
[Justice Anant Bijay Singh] Member (Judicial) [Ms. Shreesha Merla] Member (Technical) New Delhi 28th February, 2023.
R. Nath.
Company Appeal (AT) (Ins.) No. 685 of 2021