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2024 Supreme(Telangana) 261
IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD
SUREPALLI NANDA, J.
M/s Vamshi Rubber Limited – Petitioner
Versus
Union of India and Others – Respondents
Writ Petition No. 20649 of 2023
Decided On : 03-06-2024
For the Petitioner: B. Ravi Kiran Singh.
For the Respondents: V. Subba Rao, Amir Bavani.
IMPORTANT POINT
The court affirmed that corporate guarantors are bound by their guarantees, and information utilities must authenticate defaults as per statutory regulations.
Headnote:
Insolvency - Guarantor Liability - IBBI Regulations 2017, Companies Act 2013 - The court upheld the validity of the debt information recorded against the petitioner as a guarantor, emphasizing the statutory obligations of information utilities and the binding nature of corporate guarantees.
Fact of the Case:
The petitioner, a corporate guarantor, challenged the recording of debt information against them by an information utility, claiming it was done without proper authentication and notice, violating principles of natural justice and statutory provisions.
Finding of the Court:
The court found that the information utility acted within its statutory obligations and that the petitioner, as a corporate guarantor, had failed to acknowledge their liability, thus the recording of the debt was lawful.
Issues: Whether the information utility's recording of the petitioner's debt information was lawful and whether the petitioner was entitled to relief against such recording.
Ratio Decidendi: The court held that the liability of a corporate guarantor is coextensive with that of the principal borrower, and the information utility's actions were in compliance with the IBBI regulations.
Result: The writ petition was dismissed as devoid of merits.
ORDER:
1. Heard Sri B. Ravi Kiran Singh, the learned counsel appearing on behalf of the Petitioner, Mr Gadi Praveen Kumar, learned Deputy Solicitor General of India appearing on behalf of respondent No. 1, Sri Subba Rao Vadrevu, learned standing counsel appearing on behalf of Respondent No. 2 and Sri Amir Bavani, learned standing counsel appearing on behalf of Respondent No. 3.
2. The petitioner approached the court seeking prayer as under:
“declaring that the action of the Respondent No 2 in recording debt information given by Respondent No 3 vide Unique Debt Identifier: “AAACI1384C-1090” in Form C dated 29.12.2022 against the petitioner showing him as a guarantor for the debt availed by the principal borrower for an amount of Rs. 1235 lakhs without authentication of the default as contemplated under Regulation 21 of The Insolvency and Bankruptcy Board of India (Information Utilities) Regulations 2017 or without even issuing a notice to the petitioner herein as arbitrary unlawful violative of principles of natural justice violative of the provisions of the IB Code 2016, violative of the provisions of the Companies Act 2013, against the established legal principals and violative of Article 14 R/w 300 A and consequently direct the Respondent No. 2 to deregister the said entry vide Unique Debt Identifier AAACI1384C-1090 dated 29.12.2022 in its register maintained under the statute.”
3. PERUSED THE RECORD:
(A) The Counter affidavit filed by Respondent No. 2, and in particular, paras 10, 11, 12, and 16, read as under:
“10. The salient features of a Union Government Company or a Government Company as provided under the provisions of Companies Act, 2013 are:
(a) 51% or more of the total share-capital must be held by the Government.
(b) That the company should be created by an executive decision of the Government, without seeking the approval of the parliament or the State Legislature.
(c) being in the position of majority share capital, the Government has the authority to appoint majority of directors, on the Board of Directors of the Company.
(d) An annual report of the company is to be placed before the Parliament or the State Legislature.
(e) the Government company has public accountability.
11. It is submitted that in the present case, respondent No. 2 is not a Union Government company as it does not adhere to any of the above stated requirements. In the case of Zee Telefilms v. UOI, the Hon'ble SC also stated that “While considering the aspect of the argument of the Petitioner, it should be borne in mind that the State/ Union has not chosen the Board to perform these duties nor has it legally authorised the Board to carry out these functions under any law or agreement. It has chosen to leave the activities of cricket to be controlled by private bodies out of such bodies' own volition (self-arrogated). In such circumstances when the actions of the Board are not actions by an authorised representative of the State, can it be said that the Board is discharging State functions? The answer is No. ”
12. It is submitted that by applying the above judgment, it can be understood that Respondent No. 2 is not enacted by way of any Legislation. The Respondent No. 2 are incorporated under the Companies Act, 2013 as a Public Limited Company to perform functions outlined in the Insolvency and Bankruptcy Board of India (Information Utility) Regulations, 2016. They have chosen to discharge functions in the nature of an information utility. Further, the Respondent No. 2 company do not have any administrative committee as required for a Government Company nor are they under the control of the Central Government. Therefore, the actions of Respondents No. 2 are not authorised by the State to undertake any functions that they already discharge. Hence, they are not discharging any functions of the State and are therefore, not State.
16. The Respondent No. 2 humbly submits that the Hon'ble High Court does not have the jurisdiction as the Respondent No. 2 Company is
