Shri Prem Prakash Bansal vs Idbi Bank Ltd & Anr

Comp. App. (AT) (Ins) No. 1541 of 2022 & I.A. No. 4921, 4922 of 2022 & 3112 , 3255, 3263 of 2023

(Arising out of the Order dated 01.12.2022 passed by the National Company Law Tribunal, Indore Bench in TP 12 of 2019 [CP (IB) 10 of 2019] )

IN THE MATTER OF:

Shri Prem Prakash Bansal Ex- Director of M/s. B.P. Bansal Agritech Private Limited Residing at: 401, Rajanigandha Apartment, Green Gardon, City Centra, Gird, R.K. Puri, Gwalior Madhya Pradesh 474011. ...Appellant

Versus

1. M/s. IDBI Bank Limited NPA Management Group, IDBI Complex , Near Lal Bungalows, Ahmedabad, Gujarat. ...Respondent No. 1

2. Shri Keyur Shah Interim Resolution Professionals of M/s. B.P. Bansal Agritech Private Limited 408, ChitraRath Complex, B/h. President Hotel, Off C.G. Road, Navrangpur, Ahmedabad 380009. ...Respondent No. 2

Present

For Appellant: Mr. Krishnendu Datta, Sr. Adv. with Mr. Rajat Sinha, Adv.

For Respondents: Ms. Shivangi Ghosh, Mr. Rajendra Beniwal, Mr. Saksham Solanki & Mr. Vishal Rawal, for R-1.

Ms. Shilpi Chowdhry, for R-2/ RP. -2- Comp. App. (AT) (Ins.) No. 1541 of 2022

Mr. Harshit Khare & Mr. Prafful Saini, for Intervenor, SBI, Kotak, UVARC.

JUDGEMENT

(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.

-3-

Comp. App. (AT) (Ins.) No. 1541 of 2022

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.

-4-

Comp. App. (AT) (Ins.) No. 1541 of 2022

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 -5- Comp. App. (AT) (Ins.) No. 1541 of 2022

14. It is the case of the Appellant that independent auditors during audit for the

financial year 2016-17, recorded that the corporate guarantee given by the

Corporate Debtor to the tune of Rs. 181.29 Crores to the principal borrower has

been given in contravention to Section 186 of the Companies Act, 2013.

15. The Appellant also submitted that as per the financial statement of 2016-

17, cumulative amount of paid up capital, free reserve and security premium of

the Corporate Debtor was only Rs. 6,80,44,959/- and cumulative amount of the

free reserves and securities premium of the Corporate Debtor was only Rs.

5,79,43,959/- and therefore, the Corporate Debtor could have furnish the

corporate guarantee of only Rs. 6.80 Crores (approximately) against the corporate

guarantees given by the Corporate Debtor of Rs. 181.29 Crores.

16. The Appellant pleaded that based on Independent Auditor Report, the

shareholders of the company specially Mrs. Chandra Prakash Bindal and

Mr. Rakesh Bindal addressed a letter dated 04.10.2017 to the Directors of the

Corporate Debtor showing their concern about such wrong corporate guarantees

given by the Corporate Debtor. The Appellant also submitted that such corporate

guarantee was given by the Corporate Debtor in haste due to constant pressure by

the consortium of lenders. The Appellant also stated that the Corporate Debtor

filed a petition before Regional Director, Ahmedabad on 10.10.2017 to declare a

corporate guarantee given by them as null & void.

-6-

Comp. App. (AT) (Ins.) No. 1541 of 2022

17. The Appellant also placed on record that the Adjudicating Authority vide

his order dated 26.05.2020 approved the Resolution Plan by M/s Om Shri Shubh

Labh Agritech Private Limited for amount of Rs. 18,90,59,537/- for making

payments to the secured financial creditors of the principal borrower including

Respondent No. 1.

18. The Appellant also submitted that an Intervention Application No. 01 of

2021 was filed by the shareholders of the Corporate Debtor before the

Adjudicating Authority, for declaring the corporate guarantee given by the

Corporate Debtor to the trusteeship as a void, which was dismissed by the

Adjudicating Authority vide its order dated 07.01.2022 on ground of

maintainability and the same was challenged before this Appellate Tribunal vide

CA (AT) (Ins.) No. 300 of 2022 which was also dismissed by this Appellate

Tribunal vide its order dated 30.03.2022.

19. The Appellant stated that after detailed hearing, the Adjudicating Authority

passed an Impugned Order dated 01.12.2022, initiating the CIRP of the Corporate

Debtor and appointed Respondent No. 2 as the IRP.

20. The present appeal has been filed by the Appellant based on several

grounds inter-alia:-

(i) Respondent No. 1 was not privity of the contract with the Corporate

Debtor in relation to the deed of guarantee.

-7- Comp. App. (AT) (Ins.) No. 1541 of 2022

(ii) There was no authority given by the trusteeship to the Respondents for

initiating section 7 application.

(iii) There was pending proceeding being OA. No. 846 of 2018 under

Section 19 of the Recovery of Debts due to financial institutions, Act

1993 before the Debt Recovery Tribunal, Jabalpur.

(iv) Deed of Guarantee was void under Section 186 of the Companies Act,

2013.

21. The Appellant cited the judgment of this Tribunal delivered in the case of

Rakshit Doshi Vs. IDBI Bank, Company Appeal (AT) (Ins.) No. 658 of 2022

where it was held that the event of default cannot be declared by any individual

bank in case of consortium. It has also been submitted that in the matter of IDBI

Bank Limited Vs. Rakshit Doshi, Civil Appeal No. 129 of 2023, the Hon'ble

Supreme Court of India dismissed the Civil Appeal preferred against the

judgement of this Tribunal in Rakshit Doshi (Supra).

22. It is the case of the Appellant that under Financing documents of

participating banks in the consortium, the recourse must be taken as per the

security trustee agreement.

23. The Appellant highlighted Clause 6 & 7 in interse agreement dated

10.06.2016; Clause E, Clause 4.1 (A), Clause 6.1, Clause 25 in Deed of Guarantee

dated 10.06.2016; and Clause C, 2 and 2.1, Clause 2.4, Clause 2.9, Clause 2.9.5 -8- Comp. App. (AT) (Ins.) No. 1541 of 2022

(a), Clause 2.9.5(b), Clause 2.9.5 (c) & Clause 4 in Security Trustee Agreement

in support of his case.

It is the case of the Appellant that based on these relevant clauses, the

Respondent No. 1 was required to convene meeting of all the lenders, to declare

event of default and to communicate to the trusteeship for further necessary action

and therefore the unilateral action taken by the Respondent No. 1 is in

contravention of these agreements and therefore the Respondent No. 1 could not

have filed any application under Section 7 of the Code.

24. It is further the case of the Appellant that in absence of valid event of

default, the Respondent No. 1 could not invoke the corporate guarantee given by

the Corporate Debtor or even file the Section 7 application against the Corporate

Debtor .

25. The Appellant also pleaded that since there is no contract or agreement

between the Respondent No. 1 and the Corporate Debtor, the Respondent No. 1

could not have invoked the corporate guarantee and cited the judgment of

Vodafone International Holdings BV Vs. Union of India & Anr. [(2012) 6 SCC

613] rendered by Hon'ble Supreme Court of India where it was held that company

is separate legal persona and in view of the invocation letter dated 04.04.2018

sent by the Respondent No. 1 to the Corporate Debtor was illegal and could not

have been basis for initiating application under Section 7 of the Code. -9-

Comp. App. (AT) (Ins.) No. 1541 of 2022

26. It is also the case of the Appellant that Respondent No. 1 has not placed on

record any resolution passed by the trusteeship permitting the Respondent No. 1

to initiate action against the Corporate Debtor under Section 7 of the Code and

therefore the action is illegal for want of authority.

27. The Appellant submitted that the rights and liabilities of the borrower and

lenders regarding invocation of guarantee given are governed by the Deed of

Guarantee and a perusal of the Deed of guarantee would reveal that the guarantee

was executed by M/s. B.P. Bansal Agritech in favour of the Trusteeship and

therefore it is only Trusteeship who is authorized to invoke the guarantee and the

Respondent No. 1 has no locus standi to initiate action pursuant to the corporate

guarantee against the Corporate Debtor.

28. The Appellant again pleaded that although the deed of guarantee was

executed by the Appellant as Suspended Director of the Corporate Debtor, the

same is required to be treated as illegal and void since the Corporate Debtor itself

could not have been given such guarantee in view of Section 186 of the

Companies Act, 2013.

29. The Appellant also submitted that the Corporate Debtor is a going concern

and the purpose of the Code is not meant for recovery purpose and rather only for

sustaining the corporate entities and therefore, the Impugned Order is against the

spirit of the Code.

-10-

Comp. App. (AT) (Ins.) No. 1541 of 2022

30. The Appellant submitted that he has all intention to settle its financial

commitment to the extent as feasible. The Appellant submitted that in this

background in the present appeal when the case was listed for the first time on

28.12.2022 before this Appellate Tribunal, the Appellant gave the statement

before this Appellate Tribunal about its willingness to approach the Financial

Creditor, for the settlement and requested the Appellate Tribunal that the

formation of the CoC may be stayed and this Appellate Tribunal stayed formation

of CoC vide it is order dated 28.12.2022. The Appellant stated that the Corporate

Debtor wrote letters to Respondent No. 1 regarding is willingness to submit the

OTS amount to Rs. 1 Crores vide letter dated 28.12.2022 which was later

enhanced to Rs. 1.25 Crores vide its letter dated 24.01.2023 which was against

enhanced to Rs. 1.32 Crore vide letter dated 14.04.2023 and finally offered Rs.

1.85 Crore on 14.06.2023 vide Appellant letter dated 14.06.2023.

31. The Appellant alleged that no valid reasons have been submitted by the

Respondent No. 1 in rejecting his offer of Rs. 1.85 Crores of OTS against the

corporate guarantee given by him amount to Rs. 181.29 Crores, although legally

the Corporate Debtor is not obliged to pay anything to the Consortium of Lenders

for various reasons explained earlier. The Appellant further alleged that the

Respondent No. 1 is under immense pressure from the other three lenders of the

Consortium not to accept the OTS proposal from the Appellant. -11-

Comp. App. (AT) (Ins.) No. 1541 of 2022

32. Concluding his remarks, the Appellant submitted that the Impugned Order

is illegal and perverse and has been initiated only to kill a running company under

undue pressure of the Consortium of Lenders and requested this Appellate

Tribunal to allow his appeal.

33. Per contra, the Respondent No. 1 denied all the averments made by the

Appellant treating these to be misleading, mischievous, devoid of any merit and

only to derail the process of resolution of the Corporate Debtor.

34. The Respondent No. 1 submitted that the Corporate Debtor is a group

company of the principal borrower and the shareholding pattern clearly reflect

that the principal borrowers and the Corporate Debtor are fully owned and

controlled by the same family members and in this background the Corporate

Debtor stood as corporate guarantor for the entire financial facilities of Rs. 181.29

Crores of the principal borrower and deed of guarantee dated 10.6.2016 was

executed for the benefit of the banks/consortium of lenders consisted of IDBI

Bank i.e., Respondent No. 1 as lead bank along with three other lenders, namely,

State Bank of India, RBL Bank Limited and Kotak Mahindra Bank Limited.

35. The Respondent No. 1 also elaborated several provisions of the deed of

guarantee including provisions where it has been held that the guarantee shall be

valid and binding on all the guarantor and shall remain until repayment of full

monies due to the banks are satisfied or settled with the banks. -12-

Comp. App. (AT) (Ins.) No. 1541 of 2022

36. The Respondent No. 1 also highlighted that security trustee agreement was

signed amongst the principal borrower BP Food Products Private Limited, the

banks and the IDBI Trusteeship Services Limited, where it has been clearly

elaborated that any duty or obligation of the security trustee contemplated there

in, may be performed by the lenders and in consequence any such action taken by

lenders shall not be constituted as revocation of trust created.

37. The Respondent No. 1 submitted that the account of the principal borrower

became NPA on 29.10.2017 and date of default was 31.07.2017 which is 90 days

prior to date of NPA and the Respondent No. 1 recalled the entire outstanding

liability of the principal borrower on 21.03.2018. The Respondent No. 1 also

issued a notice to the Corporate Debtor dated 04.04.2018 invoking the deed of

guarantee given by the Corporate Debtor.

38. The Respondent No. 1 further submitted that the Resolution Plan w.r.t.

CIRP of the Principal Borrower was approved by the Adjudicating Authority vide

its order dated 08.08.2018 whereby the Respondent No 1 received only Rs.

18,58,60,479/- against the total claim of the Respondent No. 1 of Rs.

47,02,44,204/- and as per approved Resolution Plan the rights and claims of the

lenders against respective guarantors and shareholders were kept alive and liberty

was granted to lenders to proceed against the guarantors which has clearly been

stipulated in the Impugned Order i.e., guarantees provided by existing

shareholder/ promoters in respect of debts shall not be extinguished by virtue of -13- Comp. App. (AT) (Ins.) No. 1541 of 2022

this Resolution Plan and lenders will retain their rights and claims on the

guarantee given by personal/ corporate guarantors of the principal borrowers.

39. The Respondent No. 1 elaborated dubious attempts of the Promoters

including the Appellant herein in derailing the resolution process of the Corporate

Debtor and the Adjudicating Authority dismissed of the objections taken by the

Promoters and the CIRP was admitted on 01.12.2022 almost after four years of

filing Section 7 application on 15.01.2018 and the same has now being challenged

by the Promoters before this Appellate Tribunal on the various grounds including

ground they have approached IDBI Bank for settlement (OTS).

40. As regards, so-called alleged settlement offer by the Appellant, the

Respondent No. 1 submitted that against the corporate guarantee of Rs. 181.29

Crores and against the huge outstanding liability of the Corporate Debtor towards

Respondent No. 1, the Corporate Debtor made a meagre offer of Rs. 1 Crore

initially which was enhanced after four further offers to final offer of only Rs.

1.85 Crores which cannot be accepted by the lender and this clearly shows the

malicious tactics of the corporate guarantors just to delay which has already been

delayed by more 4 years.

41. The Respondent No. 1 emphasised that the issue of validity of the deed of

guarantee dated 10.06.2016 has already attained finality since the application filed

for seeking declaration of said deed of guarantee as null & void was dismissed by

the Adjudicating Authority and the same was challenged before this Appellate -14- Comp. App. (AT) (Ins.) No. 1541 of 2022

Tribunal which also dismissed vide order dated 30.03.2022 and therefore, the

Appellant is barred under principal of res-judicata.

42. The Respondent No. 1 elaborated the logic of using trusteeship and

submitted that as per prevalent commercial practice in case of multiple lenders/

consortium, deed of guarantee is signed by the security trustee, who acts of behalf

of all the lenders and the prime objective of such agreement is to secure financial

facilities on behalf of multiple lenders.

43. The Respondent No. 1 refuted the claims of the Appellant in taking shelter

of the judgment rendered by this Appellate Tribunal in case of Rakshit Doshi

(Supra) and stated that the facts of the cases are entirely different since in case of

Rakshit Doshi (Supra), the Section 7 was initiated by one bank which took

unilateral action for declaring an event of default and who was also not lead

banker of the consortium, whereas in the present appeal the Respondent No. 1 is

the lead banker of the consortium and all other lenders have endorsed the action

of the Respondent No. 1 which was demonstrated before this Appellate Tribunal

where proposed intervenors / other three bankers supported the claims of the

Respondent No. 1 in open court.

The Respondent No. 1 submitted that in view of these facts, the judgment

of Rakshit Doshi (Supra) is just not applicable in the present appeal.

44. The Respondent No. 1 highlighted the significant clauses of the deed of

guarantee dated 10.06.2016, namely, Clause 3, 4, 6.2, 10,14, 18 and 20. -15-

Comp. App. (AT) (Ins.) No. 1541 of 2022

45. The Respondent No. 1 also highlighted the various section clause giving

protection to the lenders in the security trustee agreement vide clause 'D', Clause

2.3(c), Clause 2.1.3 and Clause 15.10. These clauses categorically records

liability of the guarantors and right and claim of the banks to proceed against the

guarantor and therefore, the contention of the Appellant that deed of guarantee

cannot be enforced against the Corporate Debtor by the Respondent No. 1 is

baseless.

46. The Respondent No. 1 also refuted the allegations regarding lack of privity

of contract between the Respondent No. 1 and the Corporate Debtor and stated

that it is a settled principals of law that a person for whose benefit the trust is

created by a contract, the beneficiary (in present case the lenders) may enforced

rights where the trust has been created for their benefits.

47. The Respondent No. 1 also cited the judgment of this Appellate Tribunal

given in the case of Naresh Kumar Aggarwal Vs. CFM Asset Reconstruction

Pvt. Ltd. passed in Company Appeal (AT) (Ins.) No. 470 of 2023 based on

identical facts wherein it was held that the lenders are entitled to initiate and file

an application under Section 7 of the Code despite there being a security trustee.

48. The Respondent No. 1 highlighted and emphasised that other lenders of the

consortium i.e, State Bank of India, Kotak Mahindra Bank Limited, UVARC

(earlier RBL Bank) also filed Interlocutory Applications for intervention in the

present appeal i.e, Comp. appeal (AT) (Ins.) No. 1541 of 2022, whereas one of -16- Comp. App. (AT) (Ins.) No. 1541 of 2022

the prayer of proposed Intervenor Bank is dismissal the present appeal of the

Corporate Debtor and all the lender of the consortium has agreed and given the

consent for CIRP of the Corporate Debtor.

49. The Respondent No. 1 refuted the plea taken by the Appellant regarding

deed of guarantee being void under section 186 of the Companies Act, 2013 as

the plea that the Corporate Debtor was not entitled to give guarantee of the amount

given and submitted that failure to comply the provisions does not absolve the

corporate guarantors/ Corporate Debtor from its liability towards 3rd party and at

the best the Corporate Debtor was liable for penalty of Section 186 (13) of the

Companies Act, 2013.

50. As regards, the plea of the Appellant is that he has filed the application

before the Regional Director, Ahmedabad for declaration of deed of guarantee

dated 10.06.2016 vide its petition dated 10.10.2017, the Respondent No. 1 stated

that no order whatsoever has been passed by the Regional Director till date and

no stay has been ever considered by the Regional Director, Ahmedabad which

clearly proves that the Respondent No. 1 contentions of deed of guarantee to be

treated as void is devoid of any merit.

51. The Respondent No. 1stated that there are several judgments of Hon'ble

Supreme Court of India as well as this Appellate Tribunal which establishes rules

regarding, co-existence of liability of the principal borrowers and the guarantors

in case of default.

-17-

Comp. App. (AT) (Ins.) No. 1541 of 2022

52. The Respondent No. 1 also denied the claims of the Appellant regarding

viability of the Corporate Debtor in the guise of the judgment of the Hon'ble

Supreme Court of India delivered in the case of Vidharbha Industries Power

Limited Vs. Axis Bank Limited passed in Civil Appeal No. 4623 of 2021 and

stated that Vidharbha was an electricity company having huge receivable of

thousands of crores whereas the financial health and viability of the Corporate

Debtor is extremely low and unviable to service outstanding debt of

Rs. 28,82,84,667/- and hence the Adjudicating Authority correctly passed the

Impugned Order for CIRP of the Corporate Debtor.

53. Concluding his arguments, the Respondent No. 1 requested this Appellate

tribunal to dismiss the appeal with exemplary cost.

Finding

54. The plea taken by the Appellant can be categorised into the following

categories:-

(i) The deed of guarantee dated 10.06.2016 to be treated void in view of

Section 186 of the Companies Act, 2013.

(ii) Lack of privity of contract between the Respondent No. 1 and the

Corporate Debtor.

(iii) Only trusteeship could have initiated the application under Section 7 of

the Code against the Corporate Debtor and not the lender/ Respondent

No. 1.

-18- Comp. App. (AT) (Ins.) No. 1541 of 2022

(iv) The Respondent No. 1 could not have initiated the action of its own of

filing Section 7 application without the formal meeting held with other

lenders and their consent and authorisation.

(v) Financial viability of the Corporate Debtor and status of going concern

based on the judgment of Vidharbha (Supra).

(vi) The protection given to the corporate guarantor based on several

documents including interse agreement, deed of guarantee and Security

trustee agreement.

55. All these points are inter-connected and inter dependent and as such we

shall examine all the issues raised by the Appellant in conjoint manner and shall

dealt in following discussions:-

(I) The deed of guarantee dated 10.06.2016 to be treated void in view of

Section 186 of the Companies Act, 2013.

➢ As regard, the deed of guarantee dated 10.06.2016 being void of

violation of Section 186 of the Companies Act, 2013, we would like to

take into account the relevant portion of Section 186 of the Companies

Act, 2013 which reads as under

" No company shall 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 -19- Comp. App. (AT) (Ins.) No. 1541 of 2022

or 100% of its free reserves and securities premium account, which is more."

➢ We also note that the Corporate Debtor gave the corporate guarantee of

Rs. 181.29 Crores for the credit facilities granted by the consortium of

lenders in favour of the principal borrower against the eligible amount

of Rs., 6.80 Crores (approx.) in terms of calculations made as per

Section 186 of the Companies Act, 2013.

➢ We also observe that the Appellant is the majority shareholder the

Corporate Debtor and he signed the corporate guarantee on behalf of the

Corporate Debtor, after the board of directors of the Corporate Debtor

passed suitable resolution in this regard.

➢ A pointed query was raised by this Tribunal regarding shareholding and

patterns of the Corporate Debtor and the principal borrower and it was

confined by the Appellant that 100% shareholding of these group

companies are owned by the Appellant, his wife, his brother in law, son,

daughter, daughter in law, etc., i.e., family members.

➢ The alleged shareholders who raise the issue based on the auditors

report are also close relatives and family members of the Appellant.

➢ It is noted that deed of guarantee was given on 10.06.2016 on the

financial facilities taken by the principal borrowers i.e. M/s B.P. Food

Products Private Limited which is owned by the Appellant's own son. -20-

Comp. App. (AT) (Ins.) No. 1541 of 2022

➢ In such circumstances, it is clearly established that both the principal

borrower and the Corporate Debtor are family owned group companies

which are owned and controlled by the same set of family member.

➢ In this background, it will be travesty of justice to even consider the

arguments of the Appellant to treat the deed of guarantee as void just in

order to avoid the financial obligations towards the consortium of

lenders. In any case we also observe that at the best the Corporate

Debtor was liable for punishment under Section 186 (13) of the

Companies Act, 2013 and the Corporate Debtor is not entitled for any

illegal enrichment for its own illegal and malafide acting.

➢ In view of this we are unable to accept the intentions of the Appellant

on this point.

(II) Lack of privity of contract between the Respondent No. 1 and the

Corporate Debtor.

➢ As regard lack of privity of contracts, we have to understand the context

in which the deed of guarantee has been executed through independent

trusteeship, in the present case through IDBI Trusteeship Services

Limited (in short 'Trusteeship').

➢ Normally for huge funding, the banks join hands and form a consortium

of lenders, like in the present case, where four lenders formed a -21- Comp. App. (AT) (Ins.) No. 1541 of 2022

consortium of lenders and for smooth process. Consortium availed the

facility of trusteeship who can act on their behalf.

➢ In this background, three agreements become the relevant in the present

appeal, namely, interse agreement, Deed of Guarantee and Security

Trustee Agreement.

➢ Interse agreement was signed amongst the IDBI Bank Ltd., State Bank

of India, RBL Bank Limited and Kotak Mahindra Bank Limited and

IDBI Trusteeship Services Limited to define the rights and obligations

interse the lenders in the manner and as per conditions stipulated therein

which was singed of 10.06.2016.

➢ The Security Trustee Agreement was also signed on 10.06.2016

amongst the principal borrower i.e., M/s BP. Food Products Private

Limited, the banks/ renders and IDBI Trusteeship Services Limited

wherein the trusteeship agreed to act as trustee for the benefit of the

lenders and, inter-alia, hold the security interest created in accordance

with the terms contained in this agreement for the benefit of the lenders.

➢ The deed of guarantee was also signed on 10.06.2016 between the

Corporate Debtor and the IDBI Trusteeship Services Limited where it

has been clearly indicated that the principal borrower M/s BP Food

Products Private Limited has approached the banks for various credit

facilities which have been agreed by the IDBI Consortium comprising -22- Comp. App. (AT) (Ins.) No. 1541 of 2022

of IDBI Bank as lead bank, SBI, RBL Bank Limited and Kotak

Mahindra Bank Limited as other consortium members and one of the

conditions precedent was corporate guarantee by the Corporate Debtor

for these financial facilities of the Principal Borrower in favour of the

trusteeship for the benefit of all lenders including IDBI Bank/

Respondent No. 1.

➢ The Corporate Debtor gave the corporate guarantee in favour of the

lenders for the credit facilities being given to the principal borrower and

for carrying out transactions and securing the rights of the lenders, the

trusteeship agreement was signed accordingly. Hence, it is very clear

that all these agreements were executed primarily to protect the

financial interest of the lenders and significantly on the same date i.e.,

10.06.2016.

➢ On the issue of the privity of contract, we note that the clause F of the

deed of guarantee specifically provides that "the Security Trustee acting

for the benefit of the IDBI Consortium has called upon the Guarantor

to execute this Guarantee in favour of the Security Trustee in favour of

the Banks." This makes it clear that security trustee was to act for the

benefit of IDBI Consortium consisting of all four lenders.

➢ We also observe that when the trust is created for the benefit of the

beneficiary parties party, such parties are no more strangers to the -23- Comp. App. (AT) (Ins.) No. 1541 of 2022

contract and can step in shoes, to pursue their legal remedies on their

own rights. .

➢ We also keep in mind the fact that the lenders have already been

protected and given their rights to pursue against the Promoters and the

corporate guarantors as independent rights which does not get

extinguished with the approval of resolution plan by the Adjudicating

Authority as clearly stipulated in the Impugned Order.

➢ Through several judgments of the Hon'ble Supreme Court and this

Appellate Tribunal, the co-existence of the liability of the corporate

guarantors and the principal borrower has been established.

➢ In this regard, the judgment has been rendered by the Hon'ble Delhi

High Court in the case of Madhav Trading Company vs. Union of

India and others, ILR (1978) 2 Delhi 74, where the Hon'ble Delhi High

Court held that:

"if the contract has the effect of creating a trust in favor of a third person such person may sue to have the obligation arising for his benefit fulfilled......"

(Emphasis Supplied)

In the case of Jnan Chandra Mukherjee VS Manoranjan Mitra And

Ors., AIR 1942 Cal 251, the Division Bench of Calcutta High Court:-

"A stranger to a contract which reserves a benefit for him cannot sue upon it either in English or in Indian -24- Comp. App. (AT) (Ins.) No. 1541 of 2022

law even though in India the consideration need not move from the promisee. There are two well- recognised exceptions to this doctrine. The first is where a contract between two parties is so framed as to make one of them a trustee for a third; in such cases the latter may sue to enforce the trust in his favour and no objection can be taken to his being a stranger to the contract. The other exception covers those cases where the promisor, between whom and the stranger no privity exists, creates privity by his conduct and by acknowledgment or otherwise constitutes himself an agent of the third party."

(Emphasis Supplied)

➢ Thus, in light these judgements of the Hon'ble Supreme Court of India

and two different High Courts, the Adjudicating Authority has rightly

affirmed the Respondent's right to invoke the Deed of Guarantee

against the Corporate Debtor.

➢ In view of this we hold that the corporate guarantor is liable to meet its

financial obligations.

(III) Only trusteeship could have initiated the application under Section 7 of

the Code against the Corporate Debtor as guarantor and not the lender.

➢ As regards who could initiate the Section 7 of the Code against the

corporate guarantor i.e., by trusteeship or by the lenders following

clause of the relevant agreements need to be taken into consideration. -25-

Comp. App. (AT) (Ins.) No. 1541 of 2022

The Security Trustee agreement dated 10.06.2016 signed by the Borrower,

Lenders, and Security Trustee :-

-26-

Comp. App. (AT) (Ins.) No. 1541 of 2022 -27- Comp. App. (AT) (Ins.) No. 1541 of 2022 -28- Comp. App. (AT) (Ins.) No. 1541 of 2022

The relevant clauses of the Deed of Guarantee dated 10.06.2016 are as below :-

-29- Comp. App. (AT) (Ins.) No. 1541 of 2022 -30- Comp. App. (AT) (Ins.) No. 1541 of 2022 -31- Comp. App. (AT) (Ins.) No. 1541 of 2022

➢ After going through above clauses, it is clearly evident that the deed of

guarantee and security trust agreement goes hand in hand which

primarily provide financial security to the lenders for the credit facilities

given to the principal borrower.

➢ These clauses which are in cross reference to each other, clearly records

the rights of the lenders including rights to proceed against the

guarantor.

➢ In this connection, we would also like to refer to the judgement renders

by the Hon'ble supreme Court of India in the matter of M.C. Chacko

vs. The State Bank of Travancore, 1969 (2) SCC 343: AIR 1970

Supreme Court 504, where in Para 9 which reads as under :

"9. Under the English common law only a person who is a party to a contract can sue on it and that the law knows nothing of a right gained by a third party arising out of contract: Dunlop Pneumatic Tyre Co. Vs. Selfridge and Co.. It has however been recognized that where a trust is created by a contract, a beneficiary may enforce the rights which the trust so created has given him. The basis of that rule is that though he is not a party to the contract his rights are equitable and not contractual..."

(Emphasis Supplied) -32- Comp. App. (AT) (Ins.) No. 1541 of 2022

➢ Thus the lender is entitled to initiate and file application under Section

7 of the Code despite they have been engaged trusteeship. We also take

into consideration relevant para in the matter of Naresh Kumar

Aggarwal (Supra), which reads as under :-

"13. Learned counsel for the Appellant further submits that the State Bank of India could not have been filed the Section 7 application because guarantee was executed by the Corporate Debtor in favour of SBICAP. SBICAP is Trustee Company on behalf of all the lenders. State Bank of India having assigned its debt to the Respondent No.1, it was open for the State Bank of India to exercise its rights as per the financial documents including Guarantee Deed. The guarantee executed by the Corporate Debtor in favour of SBICAP as Trustee Company of all six lenders, lenders has full entitlement to initiate proceedings under Section 7. As noted above, the Section 7 proceeding has already been initiated against another Guarantor i.e. Micro Stock Holding Pvt. Ltd., which order is still subsisting. We, thus, are of the view that argument of the Appellant that application under Section 7 by Respondent No.1 - Assignee of the State Bank of India was not maintainable, cannot be accepted."

(Emphasis Supplied) -33- Comp. App. (AT) (Ins.) No. 1541 of 2022

(IV) The Respondent No. 1 could not have initiated the action of its own of

filing Section 7 application without the formal meeting held with other

lenders and without their consent and authorisation.

➢ The allegation of the Appellant regarding want of support of other three

bankers to the Respondent No. 1 are also found baseless as the proposed

intervenors for three other lenders supported the CIRP proceedings of

the Corporate Debtor and confirm the same during hearing before us

and the same has been mentioned in their intervention applications filed

in the present appeal. Thus, the contention of the Appellant on this

ground stand rejected.

(V) Financial viability of the Corporate Debtor and going concern based on

the judgment of Vidharbha (Supra).

➢ As regard, the plea of the appellant regarding going concern of the

Appellant, we observe that against the huge outstanding liability of the

corporate guarantor/ Corporate Debtor, they have been offering meagre

settlement amount which started from Rs. 1 Crores vide their letter

dated 28.12.2022 and finally offer only Rs. 1.85 on 14.06.2023 against

the corporate guarantor of Rs. 181.29 Crores and the Respondent No. 1

has categorically been rejected by the Respondent No. 1. -34-

Comp. App. (AT) (Ins.) No. 1541 of 2022

➢ We also take into consideration the pleadings of the Respondent No. 1

that the financial health of the Corporate Debtor in no way can support

the their liability and thus we find that Vidharbha (Supra) does not

come to any help to the Corporate Debtor as corporate guarantor. ➢ In above analysis, it become clear that the principal borrower and the

Corporate Debtor are group companies which are owned and controlled

by the same set of close family members and relatives and the corporate

guarantee of Rs. 181.29 Cores was duly given by the Corporate Debtor

The appellant could not make any reasonable, legal and valid case to

avoid such liability and the cases cited by them including of Rakshit

Doshi (Supra) are clearly non applicable in the present appeal based on

distinguishable facts of the cases. In the case of Rakshit Doshi (Supra)

there was unilateral action taken by one of the banks out of the

consortium of bankers, which incidentally was not lead banker, wherein

in the present case the Respondent no. 1 is the lead banker and has been

supported by all other lenders.

56. Based on above analysis and considering all legal and factual issue raised

by the Appellant, we are unable to accept any of his pleas and the appeal,

therefore, deserves to be rejected.

-35-

Comp. App. (AT) (Ins.) No. 1541 of 2022

57. In fine the Appeal fails and stand dismissed. No Costs. Interlocutory

Application(s), if any, are Closed.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

[Mr. Indevar Pandey] Member (Technical)

Sim