Writ to Quash Personal Guarantee Demand Dismissed Due to RP Was Approved and There Was no Art. 14 Violation | HC

Case Details: Vineet Saraf v. Rural Electrification Corporation Ltd. - [2023] 155 taxmann.com 453 (HC-Delhi)

Judiciary and Counsel Details

• • Purushaindra Kumar Kaurav, J.
  • Jayant Mehta, Sr. Adv., Anirudh Wadhwa, Keshav Gulati, Shashwat Awasthi, Kanishk Garg, Debarshi Chakraborty & Anu Srivastava, Advs. for the Petitioner.
  • Sudhir Makkar, Sr. Adv., Karan Batura, Jayant Chawla, Ms Saumya Gupta & Ms Shweta Singh, Advs. for the Respondent.

Facts of the Case

In the instant case, the petitioner stood as a personal guarantor for a loan obtained by one ‘FP’ from the respondent and the deed of personal guarantee was executed. The said loan was also secured by a corporate guarantee of ‘FA’.

On account of the default committed by ‘FP’, the respondent initiated the CIRP against ‘FA’ which culminated in a resolution plan of ‘S’ being approved by the Adjudicating Authority (NCLT).

The Respondent issued a demand notice against the petitioner invoking personal guarantees of the petitioner. The petitioner filed an instant writ petition seeking to quash the said demand notice issued by the respondent invoking the personal guarantees of the petitioner.

The petitioner submitted that the issuance of the impugned demand notice was clearly an indication of the respondent’s intention to approach the NCLT u/s 95 in relation to, what they term, a non-existent debt.

The impugned demand notice was therefore without jurisdiction. He also submitted that as on date, there exists no debt against ‘FP’ that the respondent can recover, and therefore, there arises no question of the petitioner being in the position of a personal guarantor.

It was submitted that in terms of the resolution plan of ‘FA’, the respondent agreed to irrevocably transfer assign and convey its entire debt given to ‘FP’ and all its rights, title and interest thereon to ‘FA’ and, thus the impugned demand notice was without jurisdiction.

High Court Held

The High Court observed that the resolution plan provided a clarification that personal guarantee in respect of a debt of ‘FP’ would continue with the respective financial creditor, and they would have full right to enforce such securities even after the plan’s effective date.

The High Court held that since no fundamental right of the petitioner was violated, the instant writ petition deserved to be dismissed.

List of Cases Reviewed

• • State of Uttar Pradesh v. Mohammad Nooh [1958] 1 SCR 595 (para 69) followed.
  • Bhushan Power and Steel Ltd. v. Union of India 2022 SCC Online Delhi 2337 (para 159) distinguished.

List of Cases Referred to

• • Ashish Saraf v. Bhuvan Madan [2021] 132 taxmann.com 76/168 SCL 789 (SC) (para 9)
  • Prashant Shashi Ruia v. State Bank of India [2021] 133 taxmann.com 329 (Guj.) (para 23)
  • State Bank of India v. Prashant Ruia [O.A. No. 650 of 2018] (para 23)
  • Lalit Kumar Jain v. Union of India [2021] 127 taxmann.com 368 (SC) (para 42)
  • Phoenix ARC (P.) Ltd. v. Vishwa Bharati Vidya Mandir [2022] 134 taxmann.com 138/771 SCL 145 (SC) (para 44)
  • Shantilal Ambalal Mehta v. M.A. Rangaswamy 1977 SCC Online Bom. 69 (para 48)
  • Godrej Sara Lee Ltd. v. Excise and Taxation Officer-cum-Assessing Authority 2023 SCL Online SC 95 (para 49)
  • Radha Krishan Industries v. State of Himachal Pradesh [2021] 127 taxmann.com 26/86 GST 665 (SC) (para 49)
  • Zonal Manager, Central Bank of India v. Devi Ispat [2010] 11 SCC 186 (para 49)
  • Bhushan Power and Steel Ltd. v. Union of India 2022 SCC Online Delhi 2337 (para 50)
  • Murli Industries Ltd. v. Asstt. CIT 2021 SCC Online Bom. 6187 (para 50)
  • Covestro (India) (P.) Ltd. v. State of U.P. 2023 SCC Online All 41 (para 50)
  • Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta [2019] 111 taxmann.com 234 (para 51)
  • S. Govinda Menon v. Union of India AIR 1967 SC 1274 (para 58)
  • Hari Vishnu Kamath v. Syed Ahmad Ishaque AIR 1955 SC 233 (para 60)
  • Whirlpool Corpn. v. Registrar of Trade Marks [1998] 8 SCC 1 (para 62)
  • Thirumala Tirupati Devasthanams v. Thallappaka Ananthacharyulu [2003] 8 SCC 134 (para 66)
  • Isha Beevi v. Tax Recovery Officer [1975] 101 ITR 449 (SC) (para 67)
  • State of Uttar Pradesh v. Mohammad Nooh [1958] 1 SCR 595 (para 68)
  • United Bank of India v. Satyawati Tandon [2010] 8 SCC 110 (para 72)
  • Regina v. Panel on Take-Overs & Mergers, Ex parte Guinness Plc. [1989] 2 WLR 863 (para 74)
  • Hutchens v. Deauville Investments (P.) Ltd. [1986] 68 A.L.R. 367 (para 85)
  • Mark Sensing (Aust) (P.) Ltd. v. Flammea [2003] VSCA 41 (para 87)
  • Langbein v. Mottershead Investments (P.) Ltd. [2020] FCA 1790 (para 88)
  • Adelaide Bank Ltd. v. Property Builders (P.) Ltd. [2009] NSWSC 849 (para 89)
  • Property Builders (P.) Ltd. v. Adelaide Bank Ltd. [2011] NSWCA 266 (para 90)
  • HR Basavaraj v. Canara Bank [2010] 12 SCC 458 (para 100)
  • Kerala State Electricity Board v. Kurein E. Kalathil [2000] 6 SCC 293 (para 132)
  • ABL International Ltd. v. Export Credit Guarantee Corporation of India Ltd. [2004] 3 SCC 553 (para 132)
  • Joshi Technologies International Inc. v. Union of India [2015] 57 taxmann.com 290/232 Taxman 201/374 ITR 322 (SC) (para 132)
  • M.P. Power Management Company Ltd. v. Sky Power Southeast Solar India (P.) Ltd. [2023] 2 SCC 703 (para 133)
  • IDBI Bank Ltd. v. Power Finance Corporation Ltd. 2023 SCC Online Del. 2909 (para 134)
  • Cole v. Lynn [1942] 1 KB 142 (para 147)
  • Commercial Bank of Tasmania v. Jones [1893] AC 313 (para 149)
  • Mahant Singh v. U Ba Yi [1939] AC 601 (para 149)
  • Radha Thiagarajan v. South Indian Bank Ltd. MANU/KE/0057/1984 (para 152)
  • Ram Bahadur Thakur & Co. v. Sabu Jain Ltd. [1981] 51 Comp. Case 301 (Delhi) (para 152)
  • Ghanashyam Mishra & Sons (P.) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. [2021] 126 taxmann.com 132/166 SCL 237 (SC) (para 159).