Extinguishment Of Promoters' Personal Guarantees In Resolution Plan Is Valid If Plan Complies With IBC Provisions: NCLT Mumbai

The NCLT Mumbai Bench of Justices Anil Raj Chellan (Technical Member) and Kuldip Kumar Kareer (Judicial Member) affirmed that the clause in the resolution plan for extinguishing the personal guarantees of promoters furnished in favour of all financial creditors or the commercial decision of the CoC to approve such release of personal guarantees, including guarantees executed in favour of dissenting financial creditors, will not contravene any provisions of the Code. Further, the dissatisfaction of a creditor in respect of payment under the Resolution Plan is of no consequence unless it violates any of the provisions of the Code. Brief Facts The present application is filed by the Applicant under Section 60(5) read with Sections 30 and 31 of the Insolvency and Bankruptcy Code, 2016 ('the Code'). On an application filed under Section 10 of the Code, Altair Industrial Technologies Private Limited ('the Corporate Debtor') was admitted to the Corporate Insolvency Resolution Process ('CIRP') vide order dated 26.02.2019 passed by this Tribunal. The Applicant is a member of the Committee of Creditors (CoC) with an admitted claim of Rs. 3,14,01,973/- and has a voting share of 8.05%. Respondent No. 2 is the other member of the CoC with 91.95% of the voting share. The Applicant states that Respondent No.2 has agreed to consider the Resolution Plan submitted by the suspended director which is not compliant with the provisions of the Code and directed the RP/ Respondent No.1 to place the resolution plan for e-voting. Accordingly, the Resolution Plan submitted by the suspended Director was voted upon and the voting would conclude on 25.10.2021.. The Applicant states that Respondent No.1 has failed to perform his duties as required under the Code with regard to ensuring that only IBC compliant resolution plans are to be placed before the CoC for its consideration. Contentions The Applicant submitted that the resolution plan submitted by the suspended Director proposes the extinguishment of liabilities under the personal guarantees which is bad in law and against the settled position. That IBBI (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2021 notified on 30.09.2021 restricted the number of submissions and revisions of a given resolution plan to not more than once w.e.f. 01.10.2021. However, Respondent No.1 has allowed the suspended Director to submit multiple revisions even after the effective date of the aforesaid amendment by accepting an unsolicited revised Resolution Plan dated 14.10.2021 and then again, the revised Resolution Plan dated 18.10.2021. That Respondent No.1 has failed in his duties in so far as it relates to filing the appropriate application before this Tribunal under Sections 43, 45 and 66 as applicable considering the fact that there are adverse findings in the transaction audit report against the conduct of the suspended Director. Per contra, the Respondent no. 1/RP submitted that the Resolution Plan submitted for approval is in adherence to the provisions of the Code which can be seen from the compliance certificate in Form H filed as per Regulation 39 (4) of the CIRP Regulations and that the extinguishment of personal guarantee falls within the commercial wisdom of CoC and there is no provision in the Code which restricts such extinguishment. He has filed an application (IA. No. 124 of 2020) under the provisions of Section 66 of the Code and the same is still pending for adjudication. The pendency of such application does not bar the Resolution Applicant under Section 29A of the Code. That In the event of liquidation of the Corporate Debtor, the Applicant is not likely to get any amount as it holds only subservient charge over the movable and immovable assets of the Corporate Debtor. The Respondent No. 2 submitted that the Resolution Plan was considered by the CoC as per the provisions of the Code. Since no other Resolution Plan was available and considering the fact that the CIRP was expiring on 27.10.2021 and the plan value was above the liquidation value, the resolution Plan was approved. That contentions raised by the Applicant are not sustainable under law. The provisions of the Resolution Plan including the release of the personal guarantor are in accordance with the Code and the resolution plan provides for payment in accordance with the security interest held by each person. NCLT's Analysis The tribunal, at the outset, referred to the NCLAT judgment in Family Welfare Trust & Anr v. Ujjas Energy Ltd & Ors (2023) wherein the commercial decision of CoC was upheld for extinguishing the personal guarantees of the financial creditors as part of the resolution plan. The appeal filed against the order before the Hon'ble Supreme Court was also dismissed vide its order dated 06.11.2023 The tribunal while applying the above ratio to the facts of the...

Extinguishment Of Promoters' Personal Guarantees In Resolution Plan Is Valid If Plan Complies With IBC Provisions: NCLT Mumbai

Mohd Malik Chauhan

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