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One stop solution for Direct Taxes and Indirect Taxes https://www.taxtmi.com/caselaws?id=765563 https://www.taxtmi.com/caselaws?id=765563 Maintainability of Petition filed by the Respondent No. 1 under Section 95 of IBC - initiation of Personal Insolvency Resolution Process (PIRP) against the Appellant who is the guarantor of the of the Corporate Debtor ESL - barred by limitation - no privity of contract between the Appellant and State Bank of India (SBI) - Impugned Order based on invocation of personal guarantee by 3rd party - no direction issued u/s 100 (2) of the Code regarding negotiations to be held in Appellant/ personal guarantor and the Creditor/ Respondent - undervaluation of shares. The application filed under Section 95 of the Code was barred by limitation - HELD THAT:- The Respondent No. 1 issued a demand notice on 22.06.2018 requesting for payment within 60 days i.e., by 22.08.2018 and therefore, for the purpose of calculating limitation period in the present case would have started on 22.08.2018 and would have ended on 21.08.2021. The application was filed on 31.03.2021 much before the expiry of the limitation period. Both the demand notice as well as Section 95 application were filed within period the period of limitation - arguments of the Appellant on the issue of limitation stand rejected. Privity of contract - HELD THAT:- There was no privity of contract between Respondent No.1/ SBI and Appellant/ personal guarantor. Impugned Order based on invocation of personal guarantee by 3rd party - HELD THAT:- The Adjudicating Authority could not have passed the Impugned Order based on invocation of personal guarantee by 3rd party - such trusteeship deeds are generally signed between the trust on behalf of the lenders and the personal/ corporate guarantor of the principal borrower. However, by its inherent nature and intent, the lenders or the Financial Creditors are the true beneficiaries of such deed of guarantee. From the terms of the MRA and the STA, it is clear that the security trustees are holding Security not for themselves, but on behalf of, and for the benefit of, the Claimant/Lender. The Lenders, can therefore, enforce the security documents even if they are not a party to the trusteeship agreement. The Adjudicating Authority has rightly held in para 14 of the Impugned Order that merely because the trustee acted on behalf of Respondent No. l/SBI, it cannot be said that the beneficiary/creditor cannot enforce the Personal Guarantee executed by the Appellant. As can be seen from clause O of the MRA, SBICAP was appointed as Security Trustee in accordance with the terms of the Security Trustee Agreement dated 25.03.2014 for the purpose of holding the security interest for the benefit of the CDR lenders and non-CDR lenders. Thus, SBI had the locus to file the Company Petition - there are no merit and the pleadings of the Appellant on this account stand rejected. The Appellant has also challenged on the ground that the debt itself has not been crystalised - HELD THAT:- The personal guarantor signed the personal guarantee on 03.06.2015 and became guarantor on behalf of principal borrower. The borrower amount has been stipulated therein. It is already noted that there has been established the case of default of debt and subsequently CDR was sanctioned which also failed - the arguments of the Appellant not appreciated on this account based on argument that mere fact that the case is pending before the DRT and certain counter claims have been filed by the Appellant will not make debts payable by the Appellant as debts not have been crystalised - the contention of the Appellant on this ground stand rejected. Impugned Order did not issue directions under Section 100 (2) of the Code regarding negotiations to be held in Appellant/ personal guarantor and the Creditor/ Respondent - HELD THAT:- Section 100 (2) Code is applicable if repayment plan is prepared by the debtor under Section 105 of the Code then opportunity should be offered to the debtor. The order of the Adjudicating Authority is only if the Resolution Professional makes an application for the same. The Impugned Order ignored the fact regarding under valued sale of shares of Corporate Debtor subsidiary in learning.com leading to gross under recovery for the principal borrower - HELD THAT:- There are no merit on this ground in the present appeal. Conclusion - i) The application under Section 95 was filed within the limitation period. ii) The lack of direct privity of contract did not prevent the creditor from enforcing the personal guarantee. iii) The debt was crystallized, and pending proceedings did not affect this status. iv) No directions for negotiations were warranted under Section 100(2) as no repayment plan was proposed. v) The undervalued sale issue was addressed in a separate judgment, and no merit was found in the Appellant s arguments. Appeal dismissed. Case-Laws IBC Thu, 23 Jan 2025 00:00:00 +0530