2022 (5) TMI 18 - AT - Insolvency and Bankruptcy

Supreme Court upholds Corporate Guarantee, dismisses appeal, initiates Corporate Insolvency Resolution Process.

The appeal was dismissed by the Supreme Court, upholding the validity of the Corporate Guarantee and its invocation. The Court found the Corporate Debtor ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - debt became due and payable or not - liability of Guarantor - liability of the Guarantor being coextensive with the Principal Borrower or not - validity of Letter of Invocation/Demand - HELD THAT:- The term Guarantee is a continuous one and therefore, the right to sue accrues when the Guarantee Agreement was invoked and the date when the Corporate Debtor had failed to discharge its obligation, in terms of Guarantee - there is no two opinion of a primordial fact that the liability of the Guarantor being coextensive with the Principal Borrower, in terms of the ingredients of Section 128 of the Indian Contract Act, 1872. The liability of a Guarantor will be cemented up on the document like Guarantee Deed, Mortgage by Deposit of Title Deeds, etc. In the instant case, one cannot remain oblivious of the fact that the outstanding debt Viz., the defaulted sum of the Corporate Debtor stood at ₹ 1,50,39,59,607.73 paise, which was payable on 27.09.2018, on the date when the Account as Non Performing Asset - the Appellant in its One Time Settlement had recognised itself as the Debtor in respect of the outstanding sum to be paid to the ₹ 1st Respondent/Applicant/Financial Creditor, in the latter’s position as Assignor. The other vital fact to be kept in mind is that the Guarantee has a Live Force and that the Appellant’s obligation is not wiped out in discharging its liability. It is to be remembered that under the I & B Code, 2016, the Quantum of Liability is not a relevant factor to be taken into account and has no nexus in respect of the Initiation of Corporate Insolvency Resolution Process, in as much as the Default of a Debt is equivalent to ₹ 1 Crore and above. An Adjudicating Authority is not to determine a money claim or suit. The I & B Code, 2016, requires an Adjudicating Authority only, to find out and record satisfaction in a summary adjudication, in regard to the occurrence of Default, as per ingredients of Section 4, before admitting a Petition. In the light of foregoing detailed Qualitative and Quantitative discussions, this Tribunal taking into account of the fact that in the instant case that the Debt was assigned by the Applicant/Financial Creditor/State Bank of India to the ₹ 1st Respondent/ASREC (INDIA) Limited and bearing in mind another fact that the Corporate Debtor had not replied to the Letter / Notice of the ₹ 1st Respondent/Financial Creditor in pressing into service the Corporate Guarantee Agreement dated 19.07.2018 and considering the cumulative attendant facts and circumstances of the instant case, which float on the surface, comes to an inescapable, inevitable and irresistible conclusion that the impugned order passed by the Adjudicating Authority (National Company Law Tribunal, Division Bench – I, Chennai) in CP(IB)/82/CHE/2021 in arriving at the conclusions that the Financial Debt was proved by the ₹ 1st Respondent/Applicant/Financial Creditor’ and that the Default was committed by the Corporate Debtor and ultimately admitting the Application (filed under Section 7 of the Code by the 1st Respondent/Applicant/Financial Creditor) are free from any legal infirmities. Appeal dismissed. Issues Involved:1. Limitation period for filing the appeal.2. Validity of the Corporate Guarantee and its invocation.3. Quantum of liability and default.4. Applicability of Section 10A of IBC, 2016.Detailed Analysis:1. Limitation Period for Filing the Appeal:According to the Learned Counsel for the Appellant, the appeal was filed within the limitation period. The impugned order was passed on 04.02.2022, and the period of 30 days to prefer an appeal ended on 06.03.2022. However, the Hon’ble Supreme Court excluded the period between 15.03.2020 and 28.02.2022 for calculating limitation. Therefore, the period from 04.02.2022 till 28.02.2022 would stand excluded, and the first day would run from 01.03.2022. The Tribunal held that the appeal was filed in time and disposed of IA No. 237 of 2022 accordingly.2. Validity of the Corporate Guarantee and Its Invocation:The Appellant, the Promoter and Former Managing Director of the Corporate Debtor, argued that the Corporate Debtor executed a Corporate Guarantee through an Agreement dated 19.07.2018 for the due repayment of loans and other sums in connection with the Working Capital Agreements. The Corporate Debtor was liable only for the debt of the principal borrower to the extent of Rs. 50.48 Crores. The Appellant contended that the Financial Creditor's demand for Rs. 150 Crores was not justified. The Tribunal referred to the Hon’ble Supreme Court's decision in Laxmi Pat Surana v. Union Bank of India, which held that the liability of the Corporate Guarantor is coextensive with that of the Principal Borrower. The Tribunal concluded that the Corporate Debtor defaulted on a sum exceeding Rs. 1 Crore and upheld the validity of the Corporate Guarantee.3. Quantum of Liability and Default:The Appellant argued that the Financial Creditor's application was inconsistent and self-contradictory, claiming Rs. 52.25 Crores in Part IV of Form-1 and Rs. 150.39 Crores in the Notice of Invocation of Guarantee. The Appellant also contended that the Financial Creditor failed to demonstrate that the debt sum became due and payable as per the terms of the Guarantee Agreement. The Tribunal noted that the Guarantee Agreement dated 19.07.2018 provided that the liability of the Guarantor shall not exceed Rs. 50.48 Crores plus interest and other charges. The Tribunal held that the Financial Creditor proved the financial debt and the default committed by the Corporate Debtor, and the application was within the period of limitation.4. Applicability of Section 10A of IBC, 2016:The Appellant contended that the date of default was 12.03.2021, and the application filed by the Financial Creditor was barred under Section 10A of IBC, 2016. The Tribunal, however, found that the default arose much before the advent of the Covid-19 pandemic and hence, the Corporate Debtor could not seek shelter under Section 10A. The Tribunal concluded that the financial debt was proved by the Financial Creditor, and the default was committed by the Corporate Debtor.Disposition:The Tribunal dismissed the appeal, stating that the impugned order passed by the Adjudicating Authority was free from any legal infirmities. The application under Section 7 of the Code filed by the Financial Creditor was admitted, and the Corporate Insolvency Resolution Process was initiated against the Corporate Debtor. IA No. 236 of 2022 (Stay Application) was closed.