The National Company Law Appellate Tribunal ( NCLAT ) has held that despite not being a party to the trusteeship deed executed on their behalf between a trust and the personal guarantors, creditors are nevertheless able to enforce a personal guarantee.
The appellant, Shantanu Jagdish Prakash, challenged an Adjudicating Authority ruling that granted an application under section 95. The appellant argued that the Personal Guarantee was vitiated because it was based on the assumption that the consortium banks would comply with the MRA, which was purposefully broken by lenders, including Respondent No. 1 and SBI.
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Additionally, it was argued that Respondent No. 1 /SBI used the Personal Guarantee signed in support of SBICAP as the basis for an application under Section 95 of the Code, even though it lacked locus standi. Since ESL’s account was designated a Non-Performing Asset (NPA) on March 31, 2013, it was further contended that this application is prohibited by limitation, meaning that the statute of limitations ended on March 30, 2016.
Furthermore, it was contended that the statute of limitations, even as it applied to the Revival Letter dated November 30, 2016, ended on November 30, 2019. Following this, on 05.11.2020, a Demand Notice was issued under the Code, and on 01.04.2021, Respondent No. 1 / SBI filed an application under Section 95 of the Code. As a result, both the Demand Notice and the application under Section 95 of the Code are time-barred.
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Additionally, it was argued that Respondent No. 1 /SBI could not have used the Personal Guarantee dated 03.06.2015 against the Appellant because it is not a signatory to it. Furthermore, it was argued that Respondent No. 1 / SBI had neglected to deliver the certificate required by Clause 17 of the Personal Guarantee, which calls for the Security Trustee or lenders to issue a document outlining the amount owed from the guarantors.
In contrast, the respondent argued that even when a security trustee has been designated to hold the security interest, there is no clause in the Code that forbids a lender from submitting a petition. As a result, it is baseless to claim that Respondent No. 1 cannot move forward since there is no direct contractual tie between them and the appellant.
The bench of Justice Rakesh Kumar Jain (Judicial Member) and Mr. Naresh Salecha (Technical Member) observed that normally trusteeship deeds are signed between a trust on behalf of lenders and the personal or corporate guarantor of the principal borrower in which beneficiaries remain the lenders or creditors.
It was stated that security trustees hold security for the advantage of the lender or claimant, not for their own gain, in accordance with the provisions of the MRA and STA. Consequently, even if they are not signatories to the trusteeship arrangement, lenders may nonetheless enforce the agreements. The tribunal noted after reviewing the pertinent provisions of the deed of guarantee that the mere fact that a trustee acted on behalf of the creditors does not bar the creditors from executing the appellant’s personal guarantee.
It also stated that SBICAP was designated as a Security Trustee in line with the conditions of the Security Trustee Agreement dated 25.03.2014 in order to hold the security interest for the benefit of both CDR and non-CDR lenders, as is evident from clause O of the MRA. SBI was therefore in a position to submit the Company Petition.
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It further rejected the contention that the Appellant’s debts are not payable because they have not crystallized, even though the case is still continuing before the DRT and the Appellant has filed certain counterclaims. Additionally, it noted that although the notice was sent in accordance with SARFAESI Act Section 13(2), the appellant was expressly required to fully discharge the borrower duty specified in the notice within 60 days of the notice. As a result, the notice satisfies every need outlined in the personal guarantee and is therefore a legitimate invocation.
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