NCLAT Delhi Reverses The Decision Of NCLT, Upholds CoC’s Decision To Accept Relinquishment Of Personal Guarantee On Payment

The National Company Law Appellate Tribunal (“NCLAT”), New Delhi Bench, comprising of Justice Ashok Bhushan (Chairperson) and Shri Barun Mitra (Technical Member), while adjudicating an appeal filed in SVA Family Welfare Trust & Anr. v Ujaas Energy Ltd. & Ors., has upheld the decision of Committee of Creditors (CoC) to accept a value for relinquishment of personal guarantees of the Corporate Debtor under the Resolution Plan. The Resolution Plan contained a clause whereby the rights under personal guarantees of the Corporate Debtor would stand extinguished and the Financial Creditors would be paid compensation towards release of such personal guarantees. The Plan was approved by the CoC with 78.04%. “The decision of the CoC to accept the value for relinquishment of personal guarantee was a commercial decision of the CoC which cannot be allowed to be impugned at the instance of dissenting Financial Creditor.” Background Facts M/s. Ujaas Energy Limited (“Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (“CIRP”) under the Insolvency and Bankruptcy Code, 2016 (“IBC”) by the NCLT. SVA Family Welfare Trust (“Successful Resolution Applicant/SRA”) submitted a Resolution Plan for the Corporate Debtor, which was approved by the Committee of Creditors (“CoC”) with 78.04% majority votes. The Resolution Plan contained a clause whereby Rs. 23,81,75,744/- was to be paid to the Financial Creditors as due compensation towards release of personal guarantees. Thereafter, the rights under personal guarantees of the Corporate Debtor would stand extinguished. All Financial Creditor of the Corporate Debtor assented to extinguishment of Personal Guarantees except for Bank of Baroda which held 5.83 vote share in CoC. The NCLT rejected the plan on the ground that CoC cannot extinguish right of the particular secured creditor to proceed against the personal guarantor of the Corporate Debtor. Hence, the plan contravenes Section 30(2)(e) of IBC. The SRA filed an appeal before the NCLAT challenging the NCLT’s order. It was argued that personal guarantees are security interest under IBC and all security interest can be dealt with in a Resolution Plan. NCLAT Verdict The Bench opined that Bank of Baroda has security interest as per Guarantee Agreements executed by personal guarantors. Further, the Financial Creditors decided to relinquish personal guarantees given to secure the loan granted to Corporate Debtor on payment of a particular value in the Resolution Plan. The CoC in its various meetings consciously deliberated the clauses for relinquishing the personal guarantees of the Financial Creditors. Thereafter, with majority votes the CoC accepted the said clause and approved the Resolution Plan. “We, thus, are of the view that there is no error in the consideration of the CoC of the Resolution Plan and the commercial wisdom of the CoC by approving the Resolution Plan has to be given due weightage.” While placing reliance on the Supreme Court judgment in Edelweiss Asset Reconstruction Company Ltd. vs. Mr. Anuj Jain, the Bench held that the decision to accept the value for relinquishment of personal guarantee was a commercial decision of the CoC and cannot be interfered with at the instance of dissenting Financial Creditor. “The above judgment fully supports the submissions of the Appellant that security interest of dissenting Financial Creditor by virtue of personal guarantee of the ex-director of the Corporate Debtor could have been very well dealt in the Resolution Plan. It is further relevant to notice that each Financial Creditor has personal guarantee in their favour to secure the loan extended by them. All Financial Creditors has assented for relinquishment of such security except Bank of Baroda which had only 5.83% vote share. The decision of the CoC to accept the value for relinquishment of personal guarantee was a commercial decision of the CoC which cannot be allowed to be impugned at the instance of dissenting Financial Creditor.” The Bench set aside the order passed by NCLT and the latter has been directed to pass a fresh order in application seeking approval of plan. “Plan allocates a plan value for extinguishment of personal guarantee which has been accepted by the Financial Creditors by a vote share of 78.04%. We, thus, are of the view that the order of the Adjudicating Authority dated 06.01.2023 is unsustainable.” Case Title: SVA Family Welfare Trust & Anr. v Ujaas Energy Ltd. & Ors. Case No.: Company Appeal (AT) (Insolvency) No. 266 of 2023 Counsel for Appellant: Mr. Krishnendu Datta, Sr. Advocate with Mr. Himanshu Satija, Mr. Rajat Sinha, Ms. Neha Agarwal, Ms. Kushali Palreeha, Mr. Harsh Saxena, Advocates. Counsel For Respondent: Mr. Awanish Kumar, Mr. Prashant Kumar, Advocates for R-4/CoC Mr. Anish Agarwal, Mr. Immanud, Mr. Rohit Dubey, Advocates for R1&2 Mr....

NCLAT Delhi Reverses The Decision Of NCLT, Upholds CoC’s Decision To Accept Relinquishment Of Personal Guarantee On Payment

Pallavi Mishra

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