Judgments

BANK OF BARODA & ANR VS MBL INFRASTRUCTURES LTD. : CASE SUMMARY

The Supreme Court in Bank of Baroda Vs MBL Infrastructure Ltd (2022) SCC  Online SC 48  held that what is required under  29 A (h) is mere existence of personal guarantee that stands invoked by a single creditor, notwithstanding the application seeking initiation of insolvency proceedings filed by other creditor. The Supreme Court found that Resolution Plan submitted by Respondent No. 3 is not maintainable but in light of peculiar facts of the case refused to disturb the  Resolution Plan.

FACTS OF THE CASE

MBL Infrastructure was set up by one Mr. Anjani Kumar Lakhotiya (Respondent No. 3). MBL Infrastructure obtained loan facility from consortium of banks. MBL Infrastructure defaulted in payment of loan as such personal guarantee given by Respondent No.3 was invoked. RBL Bank and Allahabad Bank initiated proceedings under Section 13 (2) of SARFAESI Act.

RBL also filed Application under Section 7 of Insolvency and Bankruptcy Code, 2015 against MBL Infrastructures Ltd. (Corporate Debtor) which was admitted vide order dated 30.03. 2017.

Respondent No. 3 submitted Resolution Plan. A modified Resolution Plan was  submitted by the Respondent No. 3 on 22.11.2017 which was under consideration by CoC.

In the meantime vide Insolvency and Bankruptcy Code  (Amendment) Ordinance , 2017, Section  29 A  was introduced.  Section 29 A (h) read as under:  

 “has executed an enforceable guarantee in favour of a creditor, in respect of corporate debtor under insolvency resolution process or liquidation under this code.”

The CoC deliberated impact of amendment. Respondent No. 3 filed an application before the NCLT for declaration that he is not disqualified from submitted Resolution Plan.  The NCLT declared Respondent No. 3 eligible. Against the same appeal was filed before NCLAT wherein NCLAT directed that NCLT will not accept or reject the Resolution Plan without prior approval of appellate authority.

The Resolution Plan submitted by Respondent No. 3  was approved by the CoC by 78.50% CoC voting share.

Section 29A (h) further went through amendment which came into effect from 18.01.2018. Now 29 A (h) read as under:

(h) has executed an enforceable guarantee in favour of a creditor, in respect of a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted under this code.

On 23.03.2018, the appeal before the NCLAT was withdrawn.  The NCLT approved the Resolution Plan vide order dated 18.04.2018, which was challenged before the NCLAT by the Appellant.  The said appeal was dismissed by the NCLAT.

In the meanwhile  Section 29 (h) was again amended which came into effect from 06.06.2018, which reads as under:

(h) has executed a guarantee in favour of a creditor, in respect of a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted under this code and such guarantee has been invoked by the credit and remains unpaid in full or part”

FINDINGS OF THE SUPREME COURT

The Supreme Court observed that objective of Section 29A of the Code is to avoid unwarranted and unscrupulous elements to get into the Resolution Process while preventing their personal interests to step in. It also consciously seeks to prevent certain categories of persons who may not be in position to lend credence to the resolution process by virtue of their disqualification.

Section 29 A (h) creates one more category of persons who are ineligible to become Resolution Applicant.

Once a person executes a guarantee in favour of a creditor with respect to credit facilities availed by Corporate Debtor. and CIRP has been admitted and guarantee has been invoked, eligibility of such persons under Section 29 A (h) will be barred.

Once an application for CIRP is admitted, the process become in rem and all creditors of same class will have rights at par with each other. Thus what is required under  29 A (h) is  mere existence of personal guarantee that stands invoked by a single creditor, notwithstanding the application being filed by other creditor seeking initiation of insolvency process.

29 A (h) foresees the creditors who are either already under insolvency resolution process or are entitled to go under it.

The Supreme Court observed that there is bar at the time of submission of the Resolution Plan. But if thereafter by operation of law, a person becomes ineligible, which continues till approval by the CoC or adjudication by authority, the subsequent amended provision would govern the question of eligibility of Resolution Applicant to submit a Resolution Plan.

In the instant case Respondent No. 3 has executed personal guarantees which were invoked by three of financial creditors even prior to application filed, as such Section 29 A (h) gets attracted. The Supreme Court held that plan submitted by Respondent No. 3 should not have been entertained.

The Supreme Court observed that although Resolution Plan submitted by the Respondent No. 3 is non-maintainable, much water has flown under the bridge. The requisite percentage of voting share has been achieved. Resolution Plan is put into operation since 18.04.2018 and Corporate Debtor is a going concern. Interest of 23,000 shareholders and thousand of employees are involved. The Corporate Debtor is in process of implementing several projects of public importance. In peculiar facts of the case the Supreme Court refused to disturb the Resolution Plan.

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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

Mukesh Kumar Suman

Mukesh Kumar Suman

Mukesh Kumar Suman is an advocate based at Delhi. He has rich experience in civil, criminal, commercial, arbitration and corporate insolvency matters. He regularly appears before District Courts, NCLT, NCLAT, High Court and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

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