NEWS: NCLT Declares Insolvency Method Counter to Anil Ambani Over Rs 1200 Crores Individual Assurance to State Bank of India

By Legal Wires 8 Minutes Read

The National Company Law Tribunal, Mumbai Bench, has permitted an application lodged by State Bank of India to begin insolvency trials against Reliance Communications Chairman Anil Ambani concerning personal guarantee to the magnitude of Rs 1,200 crore.

The NCLT requested the appointment of a resolution professional & asked SBI to do the required follow-up action.

The State Bank of India (SBI) applied under Sec. 95 of the Insolvency & Bankruptcy Code, 2016 (IBC) to inductee personal insolvency reports against Anil Ambani in his ability as a personal guarantor for certain services granted to Reliance Communications Limited (RCOM) & Reliance Infratel Limited (RITL) by State Bank of India combining to INR 1200 Crore.

As per Sec. 97 (3) of the IBC, the Adjudicating Authority is necessary to oversee the Insolvency & Bankruptcy Board of India (IBBI) appoint a resolution certified for the insolvency resolution process of a personal sponsor within seven days from the lodging of an application under Sec. 95 of the IBC. However, due to the diminished functioning of courts owing to the pandemic, the Adjudicating Authority could not matter these directions as necessary under the law. Meanwhile, Ambani endured a decree in certain trials before the High Court of England and Wales, wherein he was ordered to repay almost INR 5450 Crore to specific Chinese Banks. In this background, SBI filed an Interlocutory Application requesting urgent instructions from the Adjudicating Authority to the IBBI to appoint a resolution certified under section 97 (3) of the IBC on the concern that Chinese Banks may begin implementation proceedings against Mr. Anil Ambani in India.

Ambani opposed such away because RCOM & RITL were now undergoing corporate insolvency resolution procedure & declaration plans about both companies are awaiting approval of the Adjudicating Authority, thereby destroying the debt of SBI and additional lenders. He contended that by the benefit of the approval of the solution plan, the principal debtors viz. RCOM & RITL stood released & hence the personal guarantor also stood terminated from his obligations under the personal assurance. He further argued that the request filed by SBI under section 95 of the IBC could not be ensured until the RCOM and RITL resolution plans were ratified by the Adjudicating Authority & all payments under the declaration plan finalized.

On the other hand, SBI argued that Sec. 60 (2) of the IBC itself consents synchronized proceedings against the Corporate Debtor & personal sponsor & hence there is no obstacle for the Adjudicating Authority to continue with the trial of SBI’s Application. It contended that the authorization of the resolution plans of RCOM & RITL at best dismissed the liability of the companies from recompensing SBI but not the debt itself. Further, it contended that the resolution plans explicitly excluded the implementation of guarantees, personal or business, from extinguishment. Because of the particular exception and whittle out, SBI was well within its rights to summon & impose its rights under the individual guarantee. It was additionally argued that if Mr. Anil Ambani’s arguments were to be received, huge amounts of public money being printed off, despite there being a presence of guarantees but lack of choice for implementation. We also contended that clearance of the principal debtor by process of law in bankruptcy or liquidation actions does not excuse the collateral from his/her liability.

After listening to the parties, the NCLT permitted SBI’s Application & hired an insolvency resolution specialist to examine the request under section 95 of the IBC & offer a report urging the admission or refusal of the said Application.

A bench of Janab Mohammed Ajmal, who is Judicial Member and Ravikumar Duraisamy, who is a Technical Member observed that It is not in disagreement that the Respondent provided his assurance for the credit facilities availed by RCOM & RITL. When an application under Sec. 95 of the Code is lodge by the Creditor, as in this issue, the Adjudicating Authority shall issue within 7 days of recording of the Application through the Board to appoint a resolution certified for the insolvency resolution procedure. Sec. 97(3) of the Code does not give for any option to the Adjudicating Authority to be delayed in getting the direction to the Board. The use of the phrase “shall” itself suggests the urgency with which the Application wants to be dealt with. The Authority, therefore, has no other choice than to issue the direction.

The NCLT stated both RCom & RITL obligated default in a settlement in & around January 2017. The accounts were in retrospect declared as non-performing account (NPA) with impact from August 26, 2016, even before loan contracts had been inserted into.

The order stated that such a reflective declaration seems instead absurd, akin to the proverb putting the cart before the horse. While debt & default have stayed undisputed, the absurdity of the statement of NPA has not been mentioned and disputed by the Respondent. Besides,reassessment of the pronouncement of the NPA by this Authority would not drop within the scope of the provisions of the Code, under which the instantaneous Applications have been received.

SBI was characterized by the DSK Legal team involving Mr. Nirav Shah (Partner) and Mr. Ryan D’Souza (Associate), guided by Senior Counsel Mr. Venkatesh Dhond. Mr. Anil Ambani was exemplified by Senior Counsel Mr. Harish Salve & Senior Counsel Mr. J. J. Bhat, who was ordered by M/s. Mulla & Mulla and Cragie Blunt and Caroe.

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