AI Drafter 
TaxTMI 
TaxTMI 
2022 (1) TMI 1073
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....P(IB)-3000/MB/2019 (Filed by the 1st Respondent/Financial Creditor/Applicant) passed by the 'Adjudicating Authority' (National Company Law Tribunal, Court No. 1, Mumbai Bench, Mumbai). 2. The 'Adjudicating Authority' (National Company Law Tribunal, Court No. 1, Mumbai Bench, Mumbai) while passing the 'impugned order' dated 10.05.2021 in CP(IB)-3000/MB/2019 (Filed by the 1st Respondent/Financial Creditor/Applicant under Section 7 of the I & B Code, 2016 at paragraphs-59 to 65 had observed the following: 59. " The aforesaid judgment correctly hold that the suit for recovery based upon cause of action it is within limitation cannot be in any manner in fact separate an independent remedy of winding up proceedings. In law when time begins to run, it can only be extended in the manner provided the limitation act. for eg. An acknowledgment of liability u/s 18 of Limitation Act, 1963 would extend limitation period but a suit of recovery which is independent proceedings district from the remedy of windings up, in no manner in fact the limitation within which winding up proceedings is to be filed, by somehow keeping the debt alive for the purpose of winding up. 60. There....
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....'Appellant'/'Corporate Debtor' is not the 'Principal Borrower' but who issued a 'Guarantee' which stood discharged from all the obligations by operation of Law, in terms of the Indian Contract Act, 1872 and further that the 'Application' filed under Section 7 of the I & B Code by the 1st Respondent/'Financial Creditor' was hopelessly time barred. 4. According to the Learned Senior Counsel for the 'Appellant' the 1st Respondent/Bank had shown two dates of 'Default' i.e., 27.07.2014 for the 'Principal Borrower' (GNIC) and 08.12.2014 i.e., date of invocation of 'Guarantee', as the date of 'Default' of the 'Corporate Debtor'. 5. It is represented on behalf of the 'Appellant' that the 1st Respondent/'Financial Creditor' had issued the Sanction Letter, 24.06.2009, 24.02.2010, 28.12.2012, to the 'Great Indian Nautanki Company Pvt. Ltd. ('Principal Borrower') to sanction Loan and other credit facilities from time to time. The sanction and the credit facility were secured by a first charge valued at more than Rs. 500 Crores, Company of Assets of the 'Principal Borrower' including a property at Plot admeasuring 5.66 Acres situated at Sector -29, Gurugram, Haryana, also known as 'Kingdo....
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....015. 10. The Learned Senior Counsel for the 'Appellant' points out that the 1st Respondent/'Financial Creditor', during September, 2017 had initiated 'proceedings' against the 'Principal Borrower' and the 'Appellant' under SARFAESI Act, 2002 and under RDBFI Act, 1993. Before the 'Debt Recovery Tribunal', the 'Appellant'/'Corporate Guarantor' in its 'Notes of Written Submissions' had denied their liability under the 'Corporate Guarantee' submitted during November, 2018. In fact, the 1st Respondent/'Financial Creditor' took over the possession of the 'Auditorium' site (Kingdom of Dreams) being 5.66 Acres of Land valued more Rs. 500 Crores as a measure under Section 13(4) of the SARFAESI Act, 2002, as per 'Possession Notice' dated 02.07.2018. 11. The Learned Senior Counsel for the 'Appellant' adverts to the fact that the 1st Respondent/Bank had issued the Insolvency Resolution Notice dated 03.03.2017 to the 'Principal Borrower' and also issued the Insolvency Resolution Notice dated 07.03.2017 to the 'Corporate Guarantor' for Applicant. Besides this, the 1st Respondent/Bank issued Notice dated 25.08.2017 to the 'Principal Borrower' (Responded by the 'Principal Borrower through Le....
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....f the Petition' and erroneously admitted the 'Petition' and initiated the 'CIRP' against the 'Appellant' through dated 10.05.2021. 15. The Learned Senior Counsel for the 'Appellant' takes a stand that 1st Respondent/Bank had not shown the 'debt' of 'default' in Part-V in Form I being the mandatory requirement and further that, there cannot be two dates of 'default'. Moreover, it is the mandatory requirement to furnish the date of 'default' at serial No. 8 of Part-V of Form-1 to count the period of Limitation and the 1st Respondent/Bank was granted time by the 'Adjudicating Authority' to remove the defects. But such 'defects' were not removed as per Section 7(5)(b) of I & B Code. 16. The Learned Senior Counsel for the 'Appellant' contends that there is no 'debt' due or payable by the 'Corporate Debtor' to the 1st Respondent/Bank and refers to clause 3 of the 'Guarantee Agreement' runs to the effect "In the event of default on the part of the borrower in payment/respondent of any of the monies referred to above or in the event of any default on the part of the borrower to comply with or perform any of the terms conditions and covenants contained in the agreement, the g....
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....d Senior Counsel for the 'Appellant' relies on the decision of the Hon'ble Supreme Court in Shanti Conductors Pvt. V. Assam State Electricity Board and Ors. Reported in 2019 (19) SCC 529 (Civil Appeal dismissed on the ground Limitation)/2020 (2) SCC 677 (Review came to be dismissed on the ground of Limitation) for giving the benefit under Section 18 of the Limitation Act, 1963. 22. The Learned Senior Counsel for the 'Appellant' refers to the decision of Hon'ble Supreme Court in Gaurav Hargovindbhai Dave Vs. Asset Reconstruction Company (India) Limited and Anr. reported in (2019) 10 SCC 572, at spl. Page 574 wherein at paragraph 7 it is held that, 'It is not for Court to interpret commercially or otherwise articles of the Limitation Act when it is clear that a particular Article gets attracted. It is well settled that there is no equity about Limitation. Judgments has stated that often time periods provided by the Limitation Act can be arbitrary in nature'. 23. The Learned Senior Counsel for the 'Appellant' makes a forceful plea that the Letter dated 27.09.2017 relied on by the 1st Respondent/Bank, wherein the 'Appellant' had requested the 1st Respondent/Bank not to initiate a....
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....tion 7 of the I & B Code, 2016 was filed in July, 2019 with defects and the defects were not removed, although specific time was granted by the 'Adjudicating Authority' and 'date of default' was not mentioned in Form 1, Part V. 28. It is projected on the side of the 'Appellant' that even without admitting that the Letter dated 27.09.2017 can be considered as an 'Acknowledgment', still the Application filed under Section 7 of the I & B Code, 2016 is barred by Limitation, because the Application was filed on 01.08.2019 under the three year's period had expired on 29.07.2017. 29. The Learned Senior Counsel for the 'Appellant' refers to Section 135 of the Indian Contract Act, 1872 which enjoins as 'Discharge of Surety when creditor compounds with, gives time to, or agrees and to sue principal debtor. A contract between the Creditor and the principal debtor, by which the creditor makes a composition with, or promises to given time to, or not to sue, the principal debtor, discharges the surety, unless the surety assents to such contract." 30. The Learned Senior Counsel for the 'Appellant' contends that in the instant case, the 1st Respondent/Bank had agreed with the 'Principal B....
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....th the 'Right of Surety'. As such, the 'Surety' ('Corporate Guarantee) given by the 'Appellant/Corporate Guarantor stood discharged and hence, the 'Debt' is not payable by the 'Appellant/Corporate Debtor'. 33. The Learned Senior Counsel for the 'Appellant' cites the Judgment of the Hon'ble Supreme Court dated 21.01.2021 in (Civil Appeal No. 4221/2020) between M/s Reliance Asset Reconstruction Company Ltd. V. M/s Hotel Poonja International Pvt. Ltd. whereby and whereunder at paragraph 38 it is observed as follows: 38. ...."In Transmission Corporation of Andhra Pradesh Ltd. Vs. Equipment Conductors and Cable Ltd. (2019) 12 SCC 697 this Court followed its earlier judgment in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd. (2018) 1 SCC 353 and observed as under: "In a recent judgment of this Court in Mobilox Innovations Private Limited v. Kirusa Software Private Limited (2018) 1 SCC 353, this Court has categorically laid down that IBC is not intended to be substitute to a recovery forum. It is also laid down that whenever there is existence of real dispute, the IBC provisions cannot be invoked...." 34. The Learned Senior Counsel for the 'Appellant' r....
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....ion Period'. 39. The 1st Respondent/Bank had filed the 'Financial Statement' for the period 01.04.2017 to 31.03.2018 which is ratified by the Board of Directors of the Appellant/Company on 22.08.2018. As such, the case of the 1st Respondent/Bank is time barred and it cannot reap the benefit of extension of Limitation Period, as enjoined under Section 18 of the Limitation Act, 1963. 40. The Learned Counsel for the Appellant refers to the judgement of the Hon'ble Supreme Court dated 26.03.2021 in Laxmipat Surana V. Union of India and Others (vide Civil Appeal No.2734 of 2020) wherein it is observed that a right or cause of action would ensure to the financial creditor to proceed against the principal borrower, as well as to proceed against the guarantor in equal measures in case they commit default in repayment of the amount of debt acting jointly and severally. Moreover, if and when the principal borrower fails to discharge its obligation in respect of the amount of debt, the obligation of the guarantor is co-extensive and co-terminus with that of the principal borrower to defray the debt, as predicated in Section 128 of the Contract Act, 1872. Furthermore the liability and ob....
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....14 4 Company Appeal (AT) (Insolvency) No. 972 of 2020 which would neither be shifted not extended once a default has occurred. On the basis of such default the Financial Creditor, in the instant case, has approached Debts Recovery Tribunal on 20th October, 2015. In the given circumstances, it cannot lie in the mouth of the Appellant that the date of default gets extended on account of acknowledgment made in the OTS proposal emanating from the Corporate Debtor. There cannot be two defaults in respect of the same debt, one for the purpose of claim filed before the Debts Recovery Tribunal and the other for purposes of 'I&B Code' based on OTS proposal, more so when in application filed before the Adjudicating Authority in prescribed format date of default has unambiguously been reflected as 10th June, 2014. The application having been filed before the Adjudicating Authority beyond three years of occurrence of default is hopelessly time barred and it is not permissible for Appellant to take recourse to Section 18 of the Limitation Act for triggering Corporate Insolvency Resolution Process under Section 7 of the 'I&B Code' against the Corporate Debtor. 1ST RESPONDENT/BANK'S SUBMISSION....
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....the 1st Respondent/Bank has provided two different dates of 'Default' and further that the applicable date of default is the date of 'Non-Performing Asset'. 51. The Learned Counsel for the 1st Respondent/Bank adverts to the 'financial debt' owed by the 'Principal Borrower' falling under Section 5(8)(a) and that the 'financial debt' owed by the 'Corporate Debtor' falls under Section 5(8)(i). 52. The Learned Counsel for the 1st Respondent/Bank comes out with a plea that 'financial debt' owed by each individual is, therefore, not the same (although it may arise out of or be connected to the same loan) and hence, the dates of default (or commencement of limitation) will be different. 53. The Learned Counsel for the 1st Respondent/Bank draws the attention of this 'Tribunal' to the fact that Section 3(12) of the Code r/w Section 3(11) contemplates the ingredients for 'Default' (i) non-payment of debt; (ii) which becomes due and payable and (iii) that is not paid by the 'Debtor or Corporate Debtor.' Therefore, an argument is advanced on behalf of the 1st Respondent/Bank that the 'Debt' of the 'Corporate Debtor' is distinct from that of the 'Principal Borrower' and that the 'defau....
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.... a Division Bench of the High Court of Karnataka had an occasion to consider the question of liability of the surety vis-a-vis the principal debtor. Venkatachaliah, J. (as His Lordship then was) observed:- "The question as to the liability of the surety, its extent and the manner of its enforcement have to be decided on first principles as to the nature and incidents of suretyship. The liability of a principal debtor and the liability of a surety which is co-extensive with that of the former are really separate liabilities, although arising out of the same transaction. Notwithstanding the fact that they may stem from the same transaction, the two liabilities are distinct. The liability of the surety does not also, in all cases, arise simultaneously." 18. It will be noticed that the guarantor alone could have been sued, without even suing the principal debtor, so long as the creditor satisfies the court that the principal debtor is in default." 58. The Learned Senior Counsel for the 1st Respondent/Bank relies on the decision of the Hon'ble Supreme Court in Industrial Finance Corporation of India Ltd V. Cannanore Spinning and Weaving Mills and others reported in ....
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....he creditor loses nothing. The surety contracts to pay if the debtor does not pay and the surety is bound by his contract. If the surety, perhaps less indolent or less well protected than the creditor, is worried that the mortgaged securities may decline in value then the surety may request the creditor to sell and if the creditor remains idle then the surety may bustle about, pay off the debt, take over the benefit of the securities and sell them. No creditor could carry on the business of lending if he could become liable to a mortgagee and to a surety or to either of them for a decline in value of mortgaged property, unless the creditor was personally responsible for the decline. Applying the rule as specified by Pollock CB in Watts v. Shuttleworth (1860) 5 H&N 235 at 247-248, 157 ER 1171 at 1176, it appears to their Lordships that in the present case the creditor did not act injurious to the surety, did not act inconsistent with the rights of the surety and the creditor did not omit any act which his duty enjoined him to do. The creditor was not under a duty to exercise his power of sale over the mortgaged securities at any particular time or at all." 59. The Learned Senior ....
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....ngth in a Full Bench decision of this court in Su-bramania v. Narayanaswami . That was a case arising out of a reference made by Subba Rao J. (as he then was) on the question whether a non-agriculturist surety would be liable for the entire debt even though the principal debt was scaled down under the provisions of the Tamil Nadu Agriculturists Relief Act. In this decision, reference was made to the well-known principle that a guarantee is not put an end to by reason of the debt becoming unenforceable against the principal by reason of matters happening subsequently, and that a surety is liable though the claim against the principal is barred by the statute of limitation or by reason of the bankruptcy of the principal. No doubt, there is the provision in Section 45(4) of the Presidency Towns Insolvency Act expressly enacting that the fact the principal debtor has become an insolvent did not affect the liability of the surety. But this provision in the statute does not deterect from the principle that we have stated above. The liability of the guarantor arising as it doe from an independent contract, even in cases where the guarantor is a privy to the contract between the principal ....
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.... Online SC 543 (Civil Appeal No.1650 of 2020 decided on 04.08.2021) wherein at paragraph 142 to 143 it is observed as under:- "142. To sum up, in our considered opinion an application under Section 7 of the IBC would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, if there were an acknowledgement of the debt by the Corporate Debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years. 143. Moreover, a judgment and/or decree for money in favour of the Financial Creditor, passed by the DRT, or any other Tribunal or Court, or the issuance of a Certificate of Recovery in favour of the Financial Creditor, would give rise to a fresh cause of action for the Financial Creditor, to initiate proceedings under Section 7 of the IBC for initiation of the Corporate Insolvency Resolution Process, within three years from the date of the judgment and/or decree or within three years from the date of issuance of the Certificate of Recovery, if the dues of the....
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....tor acknowledging its debt by way of letters, written in and after 2018, giving details of amount repaid, acknowledging the amount outstanding and requesting consideration of one-time settlement proposal. Sub-section (1) of Section 18 of the Limitation Act reads as under: 18. Effect of acknowledgement in writing. - (1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgement of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgement was so signed. 23.It is no more res integra that Section 18 of the Limitation Act is applicable to applications filed under Section 7 of the Code. In case the application under Section 7 is filed beyond the period of three years from the date of default and the financial creditor furnishes the required information relating to the acknowledgement of debt, in writing by the corporate debtor, before the Adjudicating Authority, wit....
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....enior Counsel for the 1st Respondent/Bank submits that Clause 5 of the 'Corporate Guarantees' clearly allow the 1st Respondent/Bank to vary the terms of the loan sanctioned to the 'Principal Borrower' without affecting the liability of the 'Corporate Debtor'. Also Clause 6 of the Guarantee permits the 1st Respondent/Bank to release or forbear to enforce any securities for the loan and such forbearance or release shall not 'discharge the liability of the Guarantor' in any manner. 66. It is pointed out by the Learned Senior Counsel for the 1st Respondent/Bank that as per Clause 7 of the 'Guarantee', the 1st Respondent/Bank is empowered to forbear or enforce the payment of loan or any interest thereof and the same shall not release the 'Guarantor' and further that the 'Guarantor' had waived all suretyship rights which the 'Guarantor' might otherwise entitle to enforce. 67. Beside the above, it is pointed out on the side of the 1st Respondent/bank that the NOC provides a pre-condition that the Tender Document must require that 'Selected Bidder' to discharge the liability of the 'Principal Borrower'. Further that the 1st Respondent/Bank continues to hold the security interest over....
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....tion under Section 7 of the Insolvency and Bankruptcy Code, 2016 as amended (the Code) is being filed without prejudice to the rights of the Financial Creditor to submit its claims before the Interim Resolution Professional or the Resolution Professional, as the case may be under the provisions of the Code with respect to any other financial debt granted by the Financial Creditor to the Corporate Debtor or otherwise." 71. In fact, under Part IV of the Application in Serial No.2, the aggregate amount of default under the Facility Agreement as on 01.06.2019 was mentioned as Rs. 60,39,87,991.41 and which includes the defaulted amounts of principal, interest and penal interest and charges. 72. In the Application filed by the 1st Respondent/Financial Creditor/Applicant under Part V 'Particulars of the Financial Debt Documents, Records and Evidence of Default at Serial No.8, it was mentioned that the following documents were attached to the Application to prove the existence of Financial Debt etc. and they are as under:- "1) Notice dated 14, 2014 sent by the IDBI Bank to the Borrower recalling the Financial Facility and for the payment of outstanding dues under the Facilit....
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.... reason the 'Corporate Guarantee' executed on 26.06.2009, 25.02.2010 and 14.01.2013 are illegal, unauthorised and unenforceable one. Apart from this, the 'Corporate Debtor' is not liable to pay to the 1st Respondent/Bank, the purported sum of INR 60,39,87,991.41 or otherwise and as such the Application filed under Section 7 of the Code by the 1st Respondent/Bank is not maintainable. 75. Added further, the 'Corporate Debtor' had taken a stand in its 'Reply' (to the application filed by the 1st Respondent/Financial Creditor) that the 1st Respondent/Financial Creditor/Bank initiated proceedings under SARFAESI Act, 2002, in which the 1st Respondent/Financial Creditor/Bank can recover entire alleged outstanding due. In fact, the 1st Respondent/Financial Creditor/Bank should exhaust remedies available for recovery of its alleged dues before proceeding with an 'Insolvency Application'. Indeed, without completion of proceedings under SARFEASI Act, 2002, it does not lie for the 1st Respondent/Financial Creditor/Bank to file the Section 7 Application under IBC. 76. Also, a plea is taken before the 'Adjudicating Authority' that the 'invocation of guarantee' is premature and that the lia....
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....uthority' had also averred in its 'Reply' that the 1st Respondent/Financial Creditor/Bank instead of moving against any other or all other personal and corporate guarantors, had arbitrarily and without any reason etc. had initiated 'Corporate Insolvency Proceeding' only against it ('Corporate Debtor') which shows mala fide. INDIAN CONTRACT ACT, 1872 80. Be it noted, that Section 126 of the Indian Contract Act, 1872 deals with 'Contract of 'Guarantee', 'surety', 'Principal Debtor and Creditor'. Section 127 of the Act pertains to 'Consideration for Guarantee'. Section 128 of the Act pertains to 'Surety's liability'. Section 129 of the Act refers to 'Continuing Guarantee'. Section 135 of the Act is concerned with 'Discharge of Surety when Creditor compounds with, gives time to, or agrees not to sue, principal debtor'. Section 140 of the Act provides for the 'Rights of Surety on Payment or Performance'. Section 146 of the Indian Contract Act, 1872 deals with 'Co-Sureties' liable to contribute equally. SUING SURETY 81. It is to be pointed out that a 'Creditor' can sue the 'surety' directly without suing the 'Principal Debtor'. In reality, 'surety' provides 'Guarantee' only w....
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....ting of compound interest, until payment/realisation. ISSUANCE OF DEMAND NOTICE 87. The 1st Respondent/Bank on 25.08.2017 issued a Demand Notice to the Appellant/Corporate Guarantor demanding to pay the 'Financial Debt' sum/Loan, whereby and whereunder it is mentioned as follows:- "Please refer to letter Ref.No.IDBI/ND/MCG.GINCPL/16-17/795 dated 07.03.2017 issued by IDBI Bank Ltd (hereafter referred to "The Bank'), wherein you were advised to arrange for payment of default committed by our assisted company M/s Great India Nautanki Company Pvt Ltd (hereafter referred to 'the company for which Wizcraft International Entertainment Pvt Ltd (WIEPL) (hereafter referred as 'The Guarantor") have provided guarantee vide Guarantee Agreement dated June 26, 2009, February 25, 2010 and January 14, 2013. 2.Despite our repeated follow-up for said payment, you have failed, neglected and not taken any step to clear the overdue as referred in above mentioned letter dated 07.03.2017. 3.In the premises, we hereby give you final Notice to arrange for clearance of overdue on immediate basis, failing which, IDBI Bank shall be constrained to take such steps against....
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....ith the demand. 12. We will examine the meaning of the words "on demand". As noticed above, the High Court was of the view that the words "on demand" in law have a special meaning and when an agreement states that an amount is payable on demand, it implies that it is always payable, that is payable forthwith and a demand is not a condition precedent for the amount to become payable. The meaning attached to the expression "on demand" as "always payable" or "payable forthwith without demand" is not one of universal application. The said meaning applies only in certain circumstances. The said meaning is normally applied to promissory notes or bills of exchange payable on demand. We may refer to Articles 21 and 22 in this behalf. Article 21 provides that for money lent under an agreement that it shall be payable on demand, the period of limitation (3 years) begins to run when the loan is made. On the other hand, the very same words "payable on demand" have a different meaning in Article 22 which provides that for money deposited under an agreement that it shall be payable on demand, the period of limitation (3 years) will begin to run when the demand is made. Thus, the words "....
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....of such demand and refusal/non-compliance. Where guarantor becomes liable in pursuance of a demand validly made in time, the creditor can sue the guarantor within three years, even if the claim against the principal debtor gets subsequently time-barred. To clarify the above, the following illustration may be useful: Let us say that a creditor makes some advances to a borrower between 10-4-1991 and 1-6-1991 and the repayment thereof is guaranteed by the guarantor undertaking to pay on demand by the creditor, under a continuing guarantee dated 1-4-1991. Let us further say a demand is made by the creditor against the guarantor for payment on 1-3-1993. Though the limitation against the principal debtor may expire on 1-6-1994, as the demand was made on 1-3-1993 when the claim was "live" against the principal debtor, the limitation as against the guarantor would be 3 years from 1-3-1993. On the other hand, if the creditor does not make a demand at all against the guarantor till 1-6-1994 when the claims against the principal debtor get time-barred, any demand against the guarantor made thereafter say on 15-9-1994 would not be valid or enforceable." CONTINUOUS GUARANTEE 90. ....
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....onstruction Co V. Vijaya Bank, Ahmedabad, AIR 1997 Guj. 24, at Pages 29, 30. 93. In the 'Guarantee Agreement' executed by the 'Corporate Debtor'/ M/s Wizcraft International Entertainment Pvt Ltd (Guarantor) on 26.06.2009 to and in favour of the 1st Respondent/Bank, Clause 3 and 4 reads as under:- "3. In the event of any default on the part of the Borrower in payment/repayment of any of the monies referred to above, or in the event of any default on the part of the Borrower to comply with or perform any of the terms, conditions and covenants contained in the Agreement, Guarantor shall upon demand, forthwith pay to the Bank without demur all the amounts payable by the Borrower, under the Agreement. 4.The Guarantor shall also indemnify and keep the Bank indemnified against all cases, damages, costs, claims and expenses whatsoever which the Bank may suffer, pay or incur by reason of or in connection with any such default on the part of the Borrower including legal proceedings taken against the Borrower and/or the Guarantor for recovery of the moneys referred to in Clause 2 above." 94. The other two Guarantee Agreements dated 25.02.2010 and 14.01.2013 executed by....
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.... the Bank, due amount of Rs. 48.39 crores and also at paragraph 6 had made a request to the 1st Respondent/Bank not to initiate any action under IBC etc. and in the teeth of the 'Debt' being not time barred against the 'Principal Debtor', the 'Limitation' begins to run only cementing on the 'Demand' made for the repayment of due amount as opined by this 'Tribunal'. 100. It is not out of place for this Tribunal to make a pertinent mention that a mere running of the eye of the contents of Reply dated 27.09.2017 of the 'Corporate Debtor' who had executed the 'Corporate Guarantee' on 26.06.2009, 25.02.2010 and 14.01.2013 latently, patently and unerringly points out that the aforesaid 'Reply' Letter of the Corporate Debtor is nothing but a 'tacit acknowledgement' of the liability in question and furthermore, a fervent request was made to the 1st Respondent/Bank not to initiate any action under the I&B Code, 2016 etc. 101. As a matter of fact, in the 'Reply' dated 27.09.2017 of the 'Corporate Debtor' addressed to the 1st Respondent/Bank, the Corporate Debtor had mentioned 'GNIC has failed to pay its dues to IDBI, as a result of which IDBI has invoked the abovementioned Guarantees a....
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....n Agreement executed by a 'Guarantor' is a separate and collateral contract distinct from the contract of debt between 'Principal Debtor' and 'Creditor'. It cannot be brushed aside that an 'Acknowledgement of Liability' will save liability only against the person who acknowledges the liability. DECISIONS ON BANK GUARANTEE 108. In the decision of Hon'ble Supreme Court in Ansal Engineering Projects Ltd V Tehri Hydro Development Corporation Ltd and Anoter reported in 1196 5SCC at page 450 wherein at paragraph 4 and 5 it is observed as under:- "4.It is settled law that bank guarantee is an independent and distinct contract between the bank and the beneficiary and is not qualified by the underlying transaction and the validity of the primary contract between the person at whose instance the bank guarantee was given and the beneficiary. Unless fraud or special equity exists, is pleaded and prime facie established by strong evidence as a triable issue, the beneficiary cannot be restrained from encashing the bank guarantee even if dispute between the beneficiary and the person at whose instance the bank guarantee was given by the Bank, had arisen in performance of the contract or exe....
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....ragraph 9 it is observed as under:- "What is important, therefore, is that the Bank Guarantee should be in unequivocal terms, unconditional and recite that the amount would be paid without demur or objection and irrespective of any dispute that might have cropped up or might have been pending between the beneficiary under the Bank Guarantee or the person on whose behalf the Guarantee was furnished. The terms of the Bank Guarantee are, therefore, extremely material. Since the Bank Guarantee represents an independent contract between the Bank and the beneficiary, both the parties would be bound by the terms thereof. The invocation, therefore, will have to be in accordance with the terms of the Bank Guarantee; or else, the invocation itself would be bad." 111. No absolvement of surety Even if a discharge, a Principal Debtor gets by operation of law in Bankruptcy or in Liquidation proceeds in respect of a Company, the same does not absolve the surety of its liability in the considered of this 'Tribunal'. HON'BLE SUPREME COURT DECISION 112. In the Judgement of Hon'ble Supreme Court dated 26.03.2021 in Laxmipat Surana V. Union of India (vide Civil Appeal No.2734 of 2020) wher....
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....rantor in equal measure in case they commit default in repayment of the amount of debt acting jointly and severally. It would still be a case of default committed by the guarantor itself, if and when the principal borrower fails to discharge his obligation in respect of amount of debt. For, the obligation of the guarantor is coextensive and coterminous with that of the principal borrower to defray the debit, as predicated in Section 128 of the Contract Act. As a consequence of such default, the status of the guarantor metamorphoses into a debtor or a corporate debtor if it happens to be a corporate person, within the meaning of Section 3(8) of the Code. For, as aforesaid, expression "default" has also been defined in Section 3(12) of the Code. For, as aforesaid, express "default" has also been defined in Section 3(12) of the Code to mean non-payment of debt when whose or any part or instalment of the amount of debt has become due or payable and is not paid by the debtor or the corporate debtor, as the case may be." CIRP INITIATION 113. A 'Financial Creditor' is entitled to initiate 'CIRP' against a 'Guarantor' or 'Surety' although the Creditor holds enough security over the a....
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....f of the 'Appellant' that the Settlement Agreement between the 1st Respondent/Bank and the Principal Borrower and the 'No Objection Certificate' dated 02.07.2019 granted by the Bank in favour 'HSVP' to re-bid the project land amount to a discharge of the 'Corporate Debtor's liability' under Section 135 and 139 of the Contract Act, 1872, the same is not a valid one in the teeth of Clause 5 to 7 of the Guarantee Agreement dated 25.02.2010 which permits the 1st Respondent/Bank to vary the loan term sanctioned to the 'Principal Borrower' without affecting the 'Corporate Debtor's' liability, the Bank being allowed to release or restrain or to enforce any securities for the loan and further the Bank is entitled to restrain to enforce the payment of loan or any interest thereof and the same shall not release the 'Guarantor' and apart from that, the 'Guarantor' had waived all the suretyship rights which it might otherwise entitled to enforce. Viewed in that perspective, this 'Tribunal' unhesitatingly comes to a consequent conclusion that the 'Guarantor' had waived all rights as 'Surety' and assumed more liability. CONTENTS OF FORM 1 FOR FILING (SECTION 7 APPLICATION) UNDER IBC. 119. ....
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....Guarantor' had committed 'Default', as per the ingredients of Section 3(2) of the Code. The Section 7 Application under the Code was filed before the 'Adjudicating Authority' on 01.08.2019 by the 1st Respondent/Bank. Notwithstanding the fact that the 'Account' of the 'Principal Borrower'(Great Indian Nautanki Company Private Limited) was classified as 'Non-Performing Asset' by the First Respondent/Bank in the instant case on hand, in regard to the 'Debt' incurred by the Principal Borrower for the 'Loans' availed by it and that the 'Corporate Guarantee Agreements' dated 26.06.2009, 25.02.2009 and 14.01.2013 were executed by the 'Corporate Debtor'/Promoter Company of the Principal Borrower and since there is an undischarged 'Live Liability', in that the 'Debt' due and payable to the First Respondent/Bank was not paid by the 'Principal Debtor', by virtue of the aforesaid three 'Corporate Guarantee Agreements'('Corporate Guarantee') , the 'Corporate Debtor' is responsible for the liability of the 'Principal Borrower'/ Great Indian Nautanki Company Private Limited. 123. Besides the above, this 'Tribunal' keeping in mind of a primordial fact that the 'Debt Liability' is arising ....