Tribunal sets aside bank's order due to barred application under Section 10A, emphasizing Guarantor's liability.

The Tribunal allowed the appeal, setting aside the impugned order and concluded that the application under Section 7 filed by the Bank was barred by Section 10A, as the default on the part of the Guarantor arose during the prohibited period under Section 10A. The Tribunal emphasized that the liability of the Guarantor is co-extensive with that of the Principal Debtor unless the contract provides otherwise, referencing relevant provisions of the Indian Contract Act and Supreme Court judgments.

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Issues Involved:

I. Whether default in payment of guaranteed amount by the Corporate Debtor is the same default as committed by the Principal Borrower and the period of limitation for both shall be the same for filing Section 7 applicationRs.

II. Whether the Deed of Guarantee dated 17.05.2019 is a guarantee on demand and the limitation of Guarantor shall ensue only when demand is made to the GuarantorRs.

III. Whether notice dated 01.10.2020 issued by the Bank to Guarantor can be treated as a notice on demand as contemplated in the guarantee and the default on the part of the Guarantor shall be only after notice dated 01.10.2020 i.e. during the period of Section 10ARs.

IV. Whether the application filed by the Bank under Section 7 was barred by Section 10ARs.

Summary:

Issue No. I:

The Tribunal examined the statutory scheme under the I&B Code regarding limitation when an application under Section 7 is filed against a Corporate Person, noting that Article 137 of the Limitation Act, 1963 applies, which provides a three-year limitation period from the date "when the right to apply accrues." The Tribunal referenced definitions under Sections 3(11) and 3(12) of the Code and relevant provisions of the Indian Contract Act, 1972, particularly Sections 126, 128, and 129. The Tribunal concluded that the liability of the Surety (Guarantor) is co-extensive with that of the Principal Debtor unless otherwise provided by the contract. The Tribunal also referenced several Supreme Court judgments, including "Margaret Lalita Samuel vs. Indo Commercial Bank Ltd." and "Syndicate Bank vs. Channaveerappa Beleri & Ors.," to support the principle that the limitation period for enforcing the liability of the Guarantor depends on the terms of the contract.

Issue No. II:

The Tribunal examined the Deed of Guarantee dated 17.05.2019, particularly clauses 1, 13, 14, and 20, which clearly contemplated demand by the Bank upon the Guarantor. The Tribunal referenced the Supreme Court judgment in "Syndicate Bank vs. Channaveerappa Beleri & Ors.," which held that the liability of the Guarantor depends on the terms of the contract. The Tribunal concluded that the Deed of Guarantee in question was a demand guarantee, and default on the part of the Guarantor would arise only when a demand notice is issued by the Bank.

Issue No. III:

The Tribunal noted that the Bank issued a notice dated 01.10.2020 to the Principal Borrower and the Guarantor, invoking the guarantee and demanding payment within seven days. The Tribunal concluded that the default on the part of the Guarantor could not be treated as occurring on any earlier date than 08.10.2020, which is subsequent to the notice dated 01.10.2020.

Issue No. IV:

The Tribunal concluded that the application filed by the Bank under Section 7 was barred by Section 10A, as the default on the part of the Guarantor arose during the prohibited period under Section 10A. The Tribunal further noted that the Adjudicating Authority had not considered the relevant clauses of the Deed of Guarantee and had erred in admitting the Section 7 application.

Conclusion:

The Tribunal allowed the appeal, setting aside the impugned order dated 01.03.2023, and concluded that the application under Section 7 filed by the Bank was barred by Section 10A.

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