Under a security fiduciary agreement, an individual lender cannot invoke the personal guarantee without obtaining the consent of the other co-lenders: NCLT Delhi

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the National Company Law Court (“NCLT”) New Delhi (Special Bench), consisting of Shri Dharminder Singh (Judicial Member) and Shri Avinash Kumar Srivastava (Technical Member), while adjudicating on a claim filed under Section 95 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) in IDBI Bank Ltd. against Manoj Gaur (personal guarantor of debtor company Jaypee Infratech Ltd)., ruled that the invocation of a personal guarantee may only be made by a Trustee after obtaining the consent of all co-lenders under the relevant Trustee Agreement. Where there are multiple beneficiaries, the trustee is required to execute the trust for the benefit of all beneficiaries in accordance with the trust deed and after obtaining authorization from the co-lenders. The order was placed on 05.05.2022.

Background Facts

Jaypee Infratech Ltd. (“Debtor Company”) had received four loans from IDBI Bank Ltd. (“Financial Creditor”) aggregating Rs. 4650,00,00,000/- and had signed a Common Loan Agreement and Facility Agreement on 30.04.2015 and a First Amendment Agreement (to the Common Loan Agreement) dated from 22.05.2015. Subsequently, an amount of Rs. 900,00,00,000/- was sold by the financial creditor to India Infrastructure Finance Company due to which the principal amount of the loan granted to the debtor company fell to Rs. 3750.00 ,00,000/-.

A trustee agreement dated 30.04.2015 was concluded between the financial creditor and the debtor company. IDBI Trusteeship Service Ltd. has been appointed to act as trustee on behalf of the financial creditor and other lenders; as well as to hold the security to be provided pursuant to the Financing Documents.

Mr. Manoj Gaur had signed a deed of guarantee dated 25.05.2015 in respect of the aforementioned loan facilities, in which, as personal guarantor, he had irrevocably and unconditionally guaranteed the repayment of said loan facilities.

The debtor company did not repay the amounts due to the financial creditor and therefore the debtor company’s loan account was declared a non-performing asset (NPA) on 31.03.2016. The financial creditor has filed a petition under Section 7 of the IBC requesting the initiation of a corporate insolvency resolution process (“CIRP”) against the corporate debtor. The NCLT Allahabad (awarding authority) had initiated the CIRP against the corporate debtor to see an order of 09.08.2017.

The financial creditor issued a notice of formal notice dated 09.07.2018 to Mr. Manoj Gaur (“personal guarantor”), requesting the reimbursement of the amounts in terms of personal guarantee deed. Subsequently, two notices of formal notice dated 12.11.2021 and 09.12.2021 were issued by the financial creditor on Form B under Rule 7(1) of the 2019 Rules to the debtor company, but the latter did not pay the contributions within the legal period. 14 days from the service of said Notice.

Following which, the financial creditor (through the resolution professional) filed an application under section 95 of the IBC against the personal guarantor on 14.01.2022. The financial creditor had also filed an application bearing the number IA 782/2022 under Article 60 (5) of the IBC, requesting the modification of the order adopted by the contracting authority on 08.02.2022 and the appointment of a Resolution Professional (RP) along with instructions for RP to submit a report under IBC Section 99, 2016.

Assertions of the personal guarantor

The Personal Guarantor disputed the claim on maintainability grounds, stating that the Financial Creditor had not locus standi to file the request under article 95, because it is foreign to the contract (deed of guarantee). It was further alleged that the financial creditor had concealed the fact that the collateral agent had already filed a similar request under section 95 of the IBC bearing (IB)-83(PB)/2022 titled IDBI Guardianship Services Ltd. Vs. Manoj Gaur in which the contracting authority had already issued an opinion. Further, the personal guarantor informed the bench that in the proceedings before NCLT Allahabad under Section 7 of the IBC, the financial institutions which provided loans to the debtor company were:

  1. IDBI Bank Limited
  2. Union Bank of India
  3. India Infrastructure Finance Company Limited
  4. life insurance company of india
  5. National Bank of India
  6. Canara Bank
  7. Bank of Maharashtra
  8. ICICI Bank Limited
  9. IFCI limited
  10. Jammu & Kashmir Bank Limited

However, in the notice of formal notice dated 09.07.2018 issued by IDBI Trusteeship Services Ltd., only the names of 4 lenders were included, namely IDBI Bank Limited, Union Bank of India, Syndicate Bank of India and Bank of Maharashtra. Further, the version of the collateral trust agreement that includes the names of all of the debtor company’s lenders was not on file with the financial creditor. Instead, the version which only contains the names of IDBI, State Bank of Hyderabad and India Infrastructure Finance Company Limited was registered.

The personal guarantor also relied on certain covenants in the security trust agreement, which provided that enforcement of the security required unanimous written instructions from all co-lenders. On this basis, the personal guarantor argued that all lenders must act together through the security trustee, but no other bank filed the claim under Section 95. The security trustee agreement securities stipulates that a single lender cannot act alone. A similar response was filed in IA No. 782/2022.

Special Training Observations

The bench observed that a trustee is appointed to hold the trust property for the benefit of the trust beneficiaries, who have a beneficial interest in the trust property. In cases where there are multiple beneficiaries, the trustee is required to execute the trust for the benefit of all beneficiaries, in accordance with the trust deed and only after obtaining the consent of the other co-lenders. It was further observed that such a clause was apparently incorporated with the intention of protecting the guarantor from harassment by an unscrupulous individual lender. The bench confirmed that, pursuant to the trust agreement, the consent of all co-lenders was required, in the absence of which an application under IBC Section 95 cannot suffice.

Bench decision

The bench ruled that the section 95 claim was invalid and dismissed it.

Case title: IDBI Bank Ltd. against Manoj Gaur (personal guarantor of debtor company Jaypee Infratech Ltd.), IB-29(PB)/2022.

Claimant’s advice: Ankur Mittal, Meera Murli, Aishwarya, lawyers.

Counsel for the Respondent: Krishnan Venugopal (Sr. Adv.), Vishal Gupta, Dheeresh Dwivedi, Gaurav Ray, Palalvi Srivastava Rajesh, lawyers.

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