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S.V. Ramasamy Cannot Claim Status After Settling Debt: NCLAT
The , has delivered a significant ruling clarifying that a who settles a ’s dues with its does not automatically step into the creditor’s shoes in . In a judgment that underscores the strict requirements of the ), the appellate bench held that without an or in the liquidation process, the guarantor cannot claim the status and rights of a .
The decision arose from the liquidation of , a company that entered in with as its sole . The company’s promoter and , S.V. Ramasamy, had his rejected, leading to a in . During liquidation, an auction purchaser deposited an of ₹54.31 lakh but defaulted on the balance. The EMD was forfeited, and ₹52.27 lakh (after deducting liquidator fees) was distributed to TMB.
Ramasamy subsequently entered into a with TMB, paying ₹9.50 crore to settle the company’s dues. TMB accepted the settlement, issued an , and the later permitted the transfer of Swastik Spinners’ assets to Ramasamy under the OTS. However, when Ramasamy sought to take the company out of liquidation, the rejected his plea in , holding that liquidation could not be withdrawn merely because the bank’s dues were satisfied. That order was not challenged and attained finality.
The Dispute Before NCLAT
The appeals before the NCLAT centered on three main issues: the entitlement to the forfeited EMD, the payment of ₹20 lakh to the erstwhile liquidator S. Muthuraju, and the claim of . Ramasamy argued that by paying off TMB, he had stepped into the bank’s shoes and was therefore entitled to the forfeited amount after . He also challenged the liquidator’s fee and ’s claim.
TMB, on the other hand, contended that it had received the ₹52.27 lakh from the EMD before the OTS and was entitled to retain it. The bank further argued that under the settlement, Ramasamy had agreed to bear all and surviving liabilities.
The NCLAT’s Key Findings
A bench of Judicial Member Justice Sharad Kumar Sharma and Technical Member Jatindranath Swain rejected both parties’ arguments on the EMD. The tribunal noted that the amount had been distributed to TMB before the OTS, and after receiving ₹9.50 crore under the settlement and issuing the , TMB’s dues stood fully satisfied. Consequently, the forfeited EMD had to return to the for distribution among stakeholders in accordance with . The NCLAT observed that TMB had earlier agreed to the return and distribution of the amount as per law.
On the liquidator’s fee, the appellate tribunal upheld the ₹20 lakh payment to Muthuraju. It noted that his fee had been fixed at ₹50,000 per month during CIRP and continued during liquidation pursuant to a prior NCLAT order. Muthuraju had worked for 64 months, conducted four e-auctions, and handled proceedings before the and . He had also reduced his claim from the original amount to ₹20 lakh.
The challenge to ’s claim was also dismissed. The had filed its claim during CIRP and later updated it during liquidation. The claim had been reported to the and the , and there was no reason to disturb it.
The Core Question: Can a Become a ?
The most significant part of the judgment deals with Ramasamy’s assertion that by settling TMB’s dues, he acquired the bank’s status and rights in the . The NCLAT squarely rejected this argument. “It is seen that Mr. S.V. Ramaswamy has settled the dues of the to the bank TMB, but there is no . It is inconceivable how he becomes a to the , when he has not sought of TMB by himself in the ,” the bench observed.
The tribunal further clarified Ramasamy’s position: “At the most, he can be described as the buyer of the assets of the in a apart from being the promoter.” As a buyer, he had no locus to claim any amount from the . As a promoter, he would be last in the queue for distribution under , which prescribes the statutory order for distributing liquidation proceeds. His payment of TMB’s dues did not give him priority over other stakeholders.
Analysis and Implications
The NCLAT’s ruling reinforces the principle that a ’s settlement of a ’s debt does not create a new relationship unless there is a formal and in the ongoing proceedings. This is consistent with the ’s objective of ensuring that liquidation proceeds are distributed according to a , not by private arrangements outside the code.
The decision also highlights the importance of procedural compliance. The OTS between Ramasamy and TMB was not entered into in line with the and its regulations, and TMB had already declared its claim fully satisfied. Therefore, the bank could not later argue that Ramasamy should personally bear the and the ’s claim.
For legal practitioners, the case serves as a cautionary tale. Personal guarantors who choose to settle a company’s debts must understand that such a payment does not automatically confer creditor status. To step into the creditor’s shoes, they must obtain a formal and seek in the . Otherwise, they remain outside the distribution framework and can only claim any surplus after all are met.
The NCLAT dismissed all four appeals, finding no reason to interfere with the ’s order. The judgment is likely to be cited in future cases involving personal guarantors and liquidation, particularly where attempts are made to circumvent the ’s distribution scheme through private settlements.
In summary, the NCLAT has firmly closed the door on the notion that a can become a merely by paying off a debt. The ’s structure requires strict adherence to its procedures, and the rights of other stakeholders cannot be overridden by a private arrangement between the guarantor and the original creditor.
