Case Title:- IDBI Bank Ltd. v Manoj Gaur (Personal Guarantor of Corporate Debtor Jaypee Infratech Ltd.)
The National Company Law Tribunal while dealing with an application u/s Section 95 of the Insolvency and Bankruptcy Code observed that a Security Trustee can only invoke the personal guarantee after obtaining the consent of all co-lenders under the concerned Security Trustee Agreement.
For the uninitiated, section 95 of the IBC came into effect on 01.12.2019 and relates to personal guarantors. It enables the personal guarantors to get insolvency proceedings initiated against a Corporate Debtor.
The facts in brief in the instant case are that a Security Trustee Agreement dated 30.04.2015 was executed between the Financial Creditor and the Corporate Debtor (Jaypee Infratech). IDBI Trusteeship Service Ltd. was appointed to act as a Trustee on behalf of the Financial Creditor and the other lenders; and also to hold the security to be created pursuant to Financing Documents.
Thereafter, Jaypee Infratech defaulted in repayment of dues to the Financial Creditor and consequently, his loan account was declared a Non-Performing Asset (NPA) on 31.03.2016.
A petition to initiate liquidation proceedings (CIRP) was initiated u/s 7 of the Code by the Financial Creditor. Owing to this, the Adjudicating Authority initiated CIRP against the Corporate Debtor on 09.08.2017. Following this, the Financial Creditor served a demand notice to the Personal Guarantor but he failed to fulfil the conditions of the demand notice within the specified timeline as prescribed in the statutory regulations.
Subsequently, the Financial Creditor moved u/s 95 of the Code against the Personal Guarantor to invoke the guarantee, who challenged the same on the grounds that the Financial Creditor has no locus standi to file the Application under Section 95, as it is a stranger to the deed of guarantee and that the Financial Creditor has also concealed the fact that a similar application has been filed u/s 95 by the Security Trustee. It was also brought to the notice of the Adjudicating Authority that it is a consortium of 10 banks that have extended credit in this case but the demand notice issued by the Financial Creditor only mentions 4 names.
It was heavily argued that the terms of the Agreement mandate that the enforcement of Security requires unanimous written instructions from all the co-lenders under clause 3.4, and that all of them must decide together to invoke the guarantee.
The Adjudicating Authority accepted the submissions of the Personal Guarantor and held that IDBI Bank (Security Trustee) cannot invoke the guarantee on behalf of all the bankers without obtaining their clear consent. Accordingly, the present application was dismissed by the Hon’ble Authority.