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2024 Supreme(Online)(NCLAT) 580
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
Hon'ble Justice Rakesh Kumar Jain (Member(Judicial)) , Hon'ble Mr. Indevar Pandey (Member (Technical)) , Hon'ble Mr. Naresh Salecha (Member (Technical)) ,
Shri Prem Prakash Bansal – Appellant
Versus
IDBI Bank Ltd & anr – Respondent
4921/ND/2022 IA
Mr. Krishnendu Datta, Sr. Adv. with Mr. Rajat Sinha, Adv., Ms. Shivangi Ghosh, Mr. Rajendra Beniwal, Mr. Saksham Solanki, Mr. Vishal Rawal, Ms. Shilpi Chowdhry, Mr. Harshit Khare, Mr. Prafful Saini
The court affirmed the validity of a corporate guarantee exceeding statutory limits, allowing lenders to initiate insolvency proceedings despite claims of lack of privity and invalidity.
Headnote:(A) Companies Act, 2013 - Section 186 - Insolvency and Bankruptcy Code, 2016 - Section 7 - Corporate guarantee - Appeal against initiation of Corporate Insolvency Resolution Process (CIRP) - Corporate Debtor provided a corporate guarantee exceeding permissible limits under Section 186 - The deed of guarantee was executed in favor of a security trustee for the benefit of lenders - The Appellant's claims of lack of privity of contract and invalidity of the guarantee were rejected - The Respondent No. 1, as lead bank, was entitled to initiate proceedings under Section 7 of the Code. (Paras 13, 28, 55)
(B) Corporate Debtor's financial viability - The Appellant's offers for settlement were deemed insufficient against the substantial outstanding liability, affirming the Corporate Debtor's inability to meet its obligations. (Paras 30, 55)
(C) Legal principles regarding privity of contract and trust - The court reiterated that beneficiaries of a trust can enforce rights created for their benefit, thus allowing lenders to pursue claims against the Corporate Debtor. (Paras 54, 55)
Facts of the case:
The Appellant, a director of the Corporate Debtor, challenged the initiation of CIRP based on a corporate guarantee given for loans exceeding statutory limits. The Corporate Debtor was part of a consortium of lenders and had significant outstanding liabilities.
Findings of Court:
The court found the corporate guarantee valid and enforceable, rejecting the Appellant's arguments regarding its invalidity and lack of privity.
Issues: The main issues included the validity of the corporate guarantee under Section 186, privity of contract, and the authority of lenders to initiate CIRP.
Ratio Decidendi: The court held that the corporate guarantee was valid despite the Appellant's claims, emphasizing the rights of lenders to initiate proceedings under the Code.
Result: Appeal dismissed.
(10.04.2024) NARESH SALECHA, MEMBER (TECHNICAL)
1. The present Appeal has been filed by the Appellant herein i.e., Shri Prem Prakash Bansal Ex- Director of M/s. B.P Bansal Agritech Private Limited (in short ‘Corporate Debtor’) in Company Appeal (AT) (Insolvency) No. 1541 of 2022 against the Impugned Order dated 01.12.2022 passed by the National Company Law Tribunal, Indore Bench (in short ‘Adjudicating Authority’) in TP 12 of 2019 [CP (IB) 10 of 2019] .
2. M/s IDBI Bank Limited is the Respondent No. 1 and Mr. Keyur Shah is the Respondent No. 2 who is the Interim Resolution Professional of the Corporate Debtor who is Respondent No. 2 herein.
3. Heard the Counsel for the Parties and perused the records made available including the cited judgements.
4. It has been submitted that the Corporate Debtor was incorporated on 17.05.2012 and Corporate Debtor was engaged in the business of 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 issued notice dated 21.03.2018 to the principal borrower recalling credit facilities and called upon him to discharge the entire liability.
9. The Appellant further stated that a notice dated 04.04.2018 was also issued by the Respondent No. 1 to the Corporate Debtor invoking the corporate guarantee dated 10.06.2016.
10. It is noted that after following due process, the principal borrower was admitted into the Corporate Insolvency Resolution Process (in short ‘CIRP’) on 08.08.2018 based on an application filed under Section 9 of the Insolvency & Bankruptcy Code, 2016 (in short 'Code’) filed by an Operational Creditor - M/s. Mansarovar Agro Sacks Private Limited.
11. The Respondent No. 1 filed an application under Section 7 of the Code against the Corporate Debtor on 16.11.2018 for Rs. 48,16,75,872/- pertaining to fund facility and Rs. 1,34,15,589/- pertaining to bank guarantee before the Adjudicating Authority.
12. The Appellant admitted having given the corporate guarantee against the financial facilities obtained by the principal borrower after approval of the same by the board of director of the Corporate Debtor. However, the Appellant submitted that the statutory approval as required under Section 186 of the Companies Act, 2013 was not obtained by the Corporate Debtor. The Appellant also admitted that corporate guarantee was executed on 10.06.2016 between the Corporate Debtor and the trusteeship.
13. The Appellant submitted that in terms of Section 186 of the Companies Act, 2013, No company can give loan to any person or body corporate or give guarantee or provide security in connection with loan exceeding 60% of its paid up share capital, free reserves and securities premium account or 100% of its free reserves and securities premium account, which is more
14. It is the case of the Appellant that independent auditors during audit for the financia
