The National Company Law Tribunal, New Delhi Bench admitted State Bank of India’s application under Section 95 of the Code against Mr. Shantanu Jagdish Prakash (Personal Guarantor / Promoter of EduComp).
By the said Judgement, the NCLT decided the following key legal issues – (i) Whether the date of default can be beyond the date of NPA declaration; (ii) Whether SBI can maintain a company petition when the Deed of (Personal) Guarantee was executed in favor of SBICAP Trustee and whether the clause in Deed of Guarantee granting joint and several rights to SBICAP Trustee and SBI was violative of Section 28 of the Indian Contract Act? (iii) whether a Company Petition can be admitted against the Personal Guarantor pending the re-evaluation of the shares held by the Corporate Debtor?
Re: Date of Default
The NCLT held that the Company Petition is deemed to be within limitation since the limitation period started on 23.08.2018. This was based on the issuance of the revival letter by the Corporate Guarantor on 30.11.2016, acknowledging the debt for the purpose of Section 18 of the Limitation Act, and the subsequent loan recall notice issued by SBI on 22.06.2018, under Section 13(2) of the SARFAESI Act, demanding the payment to be made within 60 days.
Re: The Deed of Guarantee in favour of SBICAP Trustee
the NCLT held SBI had the locus standi to file the Company Petition since it is seen from Section 95(1) of Code, that the creditor may apply either himself or jointly with other creditor or through RP to this Adjudicating Authority for initiating an Insolvency Resolution Process under chapter III. Merely because the SBICAP Trustee acted on behalf of SBI, it cannot be held that the beneficiary/creditor cannot enforce the Personal Guarantee. As per the Master Reconstruction Agreement, SBICAP was appointed as Security Trustee to hold security interests for the benefit of the CDR lenders and non-CDR lenders. Therefore, SBI had the right to initiate insolvency proceedings.
Further, the NCLT held that the Personal Guarantee was valid. It observed that while Section 28 of the Indian Contract Act prohibits certain types of agreements that restrict a party’s rights, the Personal Guarantor’s plea would also primarily result in the recovery of the debt from the Security Trustee.
Re: Admission of company petition against personal guarantee pending re-evaluation of the shares held by the Corporate Debtor
The NCLT held that the Personal Guarantor is responsible for preparing the repayment plan under Section 105 of the Code. Therefore, the Personal Guarantor can include details about the value of securities and the amount of debt repaid by the Principal Borrower or other guarantors during the implementation of the repayment plan. It was further held that the guarantor cannot be absolved of liability based on beliefs about the Corporate Debtor’s ability to repay or the possibility of a credit facility extension. Lastly, it was held that if the revaluation of securities results in an increase in value, the guarantor may benefit under Section 141 of the Indian Contract Act.
Deal value: INR 323 Crores
Our Disputes Team Comprised Partners – Dheeraj Nair and Manish Jha, Principal Associate – Vishrutyi Sahni and Associate – Muskaan Gupta.
Dheeraj is a Partner with JSA since 2009. Dheeraj has over two decades of experience advising and representing clients on complex arbitrations, litigations and regulatory proceedings.