TaxTMI 
TaxTMI 
2022 (8) TMI 1158
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...., Bench - I , Hyderabad), in admitting the 'Petition'. 2. The 'Adjudicating Authority' ('National Company Law Tribunal', Bench - I, Hyderabad), while passing the impugned order dated 20.06.2022 in CP(IB) No. 401/95 of IBC/HDB/2020 at paragraphs 12 and 13 had observed the following: 12. "At the outset it may be stated that the Financial Creditor has initiated Corporate Insolvency Resolution Process against respondent no. 2 in CP (IB) No. 407 of 2018 which has been admitted by the Adjudicating Authority vide order dated 13.08.2019. The present Petition is filed against respondent no.1, who is Personal Guarantor to the Corporate Debtor. Despite service of notice and opportunity afforded, respondent no.1 did not choose to contest the matter. Thus, the claim of the applicant as against respondent no. 1 stands unrebutted. 13. It has been stated that respondent no.2 is now under liquidation as resolution failed. The report of the Resolution Professional discloses that respondent no.1 has neither made any request for holding negotiations with the creditor for arriving at repayment plan nor any repayment plan has been submitted. Therefore, under the circumstances, the liability of res....
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....al institutions or joint venture partners, except with the prior approval of the Reserve Bank: Provided howsoever that, 1 [a person resident in India who is eligible to raise foreign currency loan under sub-regulation [1] of Regulation 6 of Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 read with Schedule I thereto,] may obtain, without the prior approval of the Reserve Bank, credit enhancement in the form of guarantee from a person resident outside India for the domestic debts raised by such companies through issue of capital market instrument like bonds and debentures subject to satisfying the terms and conditions as may be stipulated by the Reserve Bank from time to time, in this regard.]" and comes out with a plea that a 'Foreign National' cannot 'Guarantee' a 'Debt' taken by an 'Indian Company' without the permission of 'Reserve Bank of India' and even in a case, where the 'Law' does not expressly provide that the 'Contracts' in 'Violation of Law' are void, as per Section 23 of the Indian Contract Act, 1872. 9. The Learned Counsel for the Appellant forcefully urges before this Tribunal that the 'Appellant' had never executed any ....
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....2/2020, diary number 23638/21.11.2020), the corporate debtor proceeds to admit the operational debt of UICL without so much as a weak defence, nor did it seek the right and time to file a complete reply, as would be normally expected. Thus, without a full and proper hearing, as was desirable from the point of view of natural justice, the impugned order is passed by the Adjudicating Authority (NCLT) on 12.8.2020. If anything, the events as they unfolded show the haste and alacrity with which the matter as serious as initiating CIRP against a 'going concern' was dealt with, without any regard to natural justice." 15. The Learned Counsel for the Appellant refers to the Judgment of this 'Tribunal' dated 21.10.2021 in Arvind Bali and Ors., Union of India, Ministry of Corporate Affairs and Ors., reported in MANU/NL/0460/2021, wherein at paragraphs 45 to 47, it is observed as under: 45. "It must be borne in mind that the 'Rules of Natural Justice' are not the edicts of a statute. As a matter of fact, the rudimentary requirement is that (i) Fair play (ii) a Determination/An Adjudication is to be made after ascribing necessary reasons in a fair, just, and objective manner of course, bas....
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....12) 1 SCC 718 (paras 16 to 19 and 21), the Court opined that the contract would be lawful, unless the consideration and object thereof is of such a nature that, if permitted, it would defeat the provisions of law and in such a case the consideration or object is unlawful and would become void and that unless the effect of an agreement results in performance of an unlawful act, an agreement which is otherwise legal cannot be held to be void and if the effect of an agreement did not result in performance of an unlawful act, as a matter of public policy, the court should refuse to declare the contract void with a view to save the bargain entered into by the parties and the solemn promises made thereunder. The Court adverted to the exposition in the earlier decision in Shri Lachoo Mal v. Shri Radhey Shyam MANU/SC/0715/1971 : (1971) 1 SCC 619 as to what makes an agreement, which is otherwise legal, void is that its performance is impossible except by disobedience of law." 18. The Learned Counsel for the Appellant falls back upon the decision of Hon'ble Supreme Court of India in the matter of Mannalal Khetan and Ors. V. Kedar Nath Khetan and Ors. (1977) 2 SCC 424, wherein at paragraphs....
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....7. "It is thus, clear that since the Limitation Act is applicable to applications filed under Section 7 and 9 of the Code from the inception of the code, Article 137 of the Limitation Act gets attracted 'the right to sue', therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, save and except in those cases, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such applications." 21. The Learned Counsel for the Appellant refers to the decision of High Court of Patna in Bihar State Co-operative Bank & Ors. V. Nareshwar Prasad, reported in MANU/BH/0270/2004, wherein it is observed as under: "The limitation begins to run against the surety at the same time as against the principal debtor, depending upon the form of the contract entered into between the surety and the creditor, and whether or not the surety and the principal debtor are coterminus." Pleas of 1st Respondent / Bank: 22. The Learned Counsel for the 1st Respondent/Bank contends that the Corporate Debtor is the Princ....
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....into the post office." 25. The Learned Counsel for the 1st Respondent/Bank by referring to the 'Deed of Guarantee' for overall Limit dated 13.05.2014, executed by the Appellant / Personal Guarantor in favour of the 1st Respondent/Bank brings it to the notice of this 'Tribunal, in the said 'Guarantee Deed', it was mentioned that PPS Enviro Power Private Limited ('Corporate Debtor'), Hyderabad (referred to as a Borrower and the amount of the Original Overall Limit was mentioned as Rs.149,35,00,000/- as the 'Aforesaid Credit Facilities' on the terms and conditions specified and contained in the agreement of loan. 26. It is pointed out on behalf of the 1st Respondent / Bank that the Appellant/Personal Guarantor address is mentioned in the 'Deed of Guarantee' for Overall Limit dated as 13.05.2014 as No. 165, Lake View Road, West Mambalam, Chennai. Further, the 1st Respondent/Bank/Financial Creditor had issued a 'Legal Notice' dated 11.10.2017 to the Appellant / Personal Guarantor and other Parties recalling and demanding the payment of 'Outstanding Sum' mentioned in the 'Notice', within 7 days from the date of receipt of 'Notice'. 27. The Learned Counsel for the 1st Respondent/Bank ....
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....is 'Tribunal' that the address mentioned in the Appeal Memorandum is the actual address of the 'Appellant/Personal Guarantor' Viz. Indian Address and in the Guarantee Agreement, the residence address of the Appellant is shown as 'Indian Address'. Further I & B Code, 2016, is an overriding one, over other 'Laws'. 32. The Learned Counsel for the 1st Respondent/Bank points out that as per Section 95 of the I & B Code, 2016, the Financial Creditor has to establish 'Debt' and 'Default' committed by the Personal Guarantor and the 'Default' committed ought to be more than Rs.1,000/- and in the 'Revival Letters', 'Guarantee Agreements', 'Statement of Accounts' and other 'Loan Documents' in the Company Petition indicate that the Company Petition filed before the 'Adjudicating Authority' was within the period of Limitation. Moreover, the 'Appellant/Personal Guarantor' had not made payments to the Financial Creditor towards satisfaction of the 'Unpaid Financial Debt' and hence, the '1st Respondent/Bank prays for the dismissal of the instant 'Appeal' by this 'Tribunal' to secure the 'Ends of Justice'. Gist of 3rd Respondent/Resolution Professional's Status Report: 33. As against the Person....
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....w for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured." Creditor: 38. Section 3 (10) of the I & B Code, 2016 defines 'Creditor', meaning 'any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder'. Debt: 39. Section 3 (11) of the I & B Code, 2016 defines 'Debt', meaning 'a liability or obligation in respect of a 'Claim', which is due from any person and includes a 'financial debt' and 'operational debt'. Default: 40. Section 3 (12) of the I & B Code, 2016, defines 'Default', meaning 'non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not [paid] by the debtor or the corporate debtor, as the case may be'; Person: 41. Section 3 (23) of the I & B Code, 2016, defines 'person', including- (a) an individual; (b) a Hindu Undivided Family; (c) a company; (d) a trust; (e) a partnership; (f) a limited liability partnership; and (g) any other entity established under a statute; and ....
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....to assets or property of corporate debtor or debtor, including a personal guarantor of a corporate debtor, as the case may be, situated at any place in a country outside India with which reciprocal arrangements have been made, shall be subject to such conditions as may be specified." Section 238 of the I & B Code, 2016: 49. Section 238, provisions of this Code to override other laws, enjoins that; "The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law". The Foreign Exchange Management Act, 1999 (42 of 1999): 50. Section 2 (v) of The Foreign Exchange Management Act, 1999, defines, "person resident in India", means - (i) a person who has gone out of India or who stays outside India, in either case- (a) for or on taking up employment outside India, or (b) for carrying on outside India a business or vocation outside India, or (c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period; (B) a person who has come to or stays in India, in either ca....
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....e from any place outside India, then, such person shall be deemed to have received such payment otherwise than through an authorised person;" 55. Regulation 3 of The Foreign Exchange Management (Guarantees) Regulations 2000, under the caption "Prohibition", provides as under: "Save as otherwise provided in these regulations, or with the general or special permission of the Reserve Bank, no person resident in India shall give a guarantee or surety in respect of, or undertake a transaction, by whatever name called, which has the effect of guaranteeing, a debt, obligation or other liability owed by a person resident in India to, or incurred by, a person resident outside India." 56. Section 3-A of the Foreign Exchange Management (Guarantees) Regulations 2000, under the heading "Restriction on obtaining overseas guarantee", reads as under: "No corporate registered under the Companies Act, 1956 (1 of 1956) shall avail domestic rupee denominated structured obligations by obtaining credit enhancement in the form of guarantee by international banks, international financial institutions or joint venture partners, except with the prior approval of the Reserve Bank: Provided howsoeve....
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.... of the aggregate value exceeding the threshold prescribed under the proviso to sub-section (1) of section 37-A, he shall be, in addition to the penalty imposed under sub-section (1-A), punishable with imprisonment for a term which may extend to five years and with fine. (1-D) No court shall take cognizance of an offence under subsection (1-C) of section 13 except as on complaint in writing by an officer not below the rank of Assistant Director referred to in subsection (1-B).] (2) Any Adjudicating Authority adjudging any contravention under sub-section (1), may, if he thinks fit in addition to any penalty which he may impose for such contravention direct that any currency, security or any other money or property in respect of which the contravention has taken place shall be confiscated to the Central Government and further direct that the foreign exchange holdings, if any, of the persons committing the contraventions or any part thereof, shall be brought back into India or shall be retained outside India in accordance with the directions made in this behalf. Explanation.-For the purposes of this sub-section, "property" in respect of which contravention has taken place, sh....
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....e importantly, the Financial Creditor/Bank had sanctioned ten different types of loans (under Ten Account Numbers) to the Corporate Debtor and the disbursement dates for fuller and better appreciation are mentioned as under: S.No. Account No. Amount (Rs.) Date of Disbursement 01 62131971788 3,30,76,593.75 21.05.2010 02 62411094312 2,27,05,401.90 27.03.2015 03 62305798321 41,91,90,154.27 27.09.2013 04 67186526001 19,41,88,628.00 15.06.2012 05 67351168660 3,95,00,000.00 24.02.2016 06 32506801679 31,13,83,711.00 01.09.2012 07 31236416885 25,04,51,333.00 27.05.2011 08 30017665227 51,74,95,603.89 07.10.2015 09 34958991534 2,50,00,000.00 28.05.2015 10 34963065381 2,50,00,000.00 30.05.2015 62. According to the 1st Respondent/Bank, the 'Date of Default' of the 'Corporate Debtor' (PPS Enviro Power Private Limited) was on 26.12.2015 and the Accounts were declared as 'Non Performing Asset'. It is pertinently pointed out by this 'Tribunal', that in CP (IB) No. 407/7/HDB/2018, before the 'Adjudicating Authority', the '1st Respondent/Bank' had in its 'Application' under Section 7 of the Code had mentioned that the 'Cor....
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.....2020 by Creditor to initiate Insolvency Resolution Process (vide Rule 7 (2) of the I & B (Application to Adjudicating Authority) for Insolvency and Resolution Process for Personal Debtor, Rules, 2019. 67. In Part II of the 'Application' dated 16.10.2020 of the 1st Respondent/Bank to initiate 'Insolvency Resolution Process' in respect of the Appellant/Personal Guarantor (Mr. Satyan Kasturi), under the caption 'Particulars of the Guarantor', at Serial No. 4, 'address' is mentioned as under: Present Permanent Business 102/36, Defence Officers Colony, Ekkattuthangal, Chennai - 600032 165, Lake View Road, West Mambalam, Chennai - 600033 97/A, Road No. 18, Phase-1, IDA Jeedimetla, Hyderabad - 500055 68. In the Counter, filed by the 'Appellant/Personal Guarantor' as 1st Respondent, before the 'Adjudicating Authority' to CP (IB) No. 401/95 of IBC/ HDB/ 2020 filed by the 1st Respondent / Bank had not whispered about the 'Regulation 3A of the Foreign Exchange Management (Guarantees) Regulations', 2000. Also, the plea of the 'Contract(s)' being 'Void', as per Section 23 of the Indian Contract Act, 1872, was not raised. 69. The Appellant/Personal Guarantor in its Counter, to CP(IB)....
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....time of issuance of 'Guarantee', the 'Funds' do not really / actually flow from India, yet at the time of invocation of 'Guarantee', the 'Funds', may be required to be remitted. 72. This 'Tribunal' quite aptly points out that as per A.P. (DIR Series), Circular No. 20 dated 29.08.2012, the 'Reserve Bank of India', has extended the 'Facility of Non-Resident Guarantee' under general permission for 'Non-Fund Based Facilities', Viz. 'Letters of Credit' / 'Guarantees' / 'Letter of Undertaking' (LOU) / 'Letter of Comfort' (LOC), entered into between the 'two persons resided in India'. 73. In this connection, this 'Tribunal', points out that a 'Guarantee' by a 'resident outside India' is permitted as 'Capital Account Transaction'. The non-resident 'Guarantor' may discharge the 'Liability' by (a) Payment out of Rupee Balances held in India (b) By remitting funds to India and (c) By deposit to his FCNR / NRE Account, maintained with an 'Authorised Dealer' in India A.P. (DIR Series), Circular No. 28 dated 30.03.2021. The Indian Contract Act, 1872 (9 of 1872): 74. Be it noted, Section 126 of the Indian Contract Act, 1872, deals with "contract of guarantee", "surety", "principal debtor" and....
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....l debtor. Therefore Section 128 of the Indian Contract Act will apply here without any exception." 75. Section 129 of the Indian Contract Act, 1872, provides for 'Continuing Guarantee', a 'Guarantee' which extends to a series of transaction being called a 'Continuing Guarantee'. Section 130 of the Indian Contract Act, 1872, concerns with 'Revocation of Continuing Guarantee'. Section 131 of the Contract Act, 1872, relates to 'Revocation of Continuing Guarantee by Surety's death'. 76. It is pointed out that a 'Continuing Guarantee' is different from 'Ordinary Guarantee'. Further, depending upon the 'Terms of Guarantee', the 'Liability' of 'Guarantee', may be limited to a particular sum, instead the 'Liability' being to the same extent as that of 'Principal Debtor'. A 'Claim' may be even time barred against the 'Principal Debtor', but still enforceable against the 'Guarantor'. The 'Parties' may agree that the 'Liability' of the 'Guarantor', shall arise at a later point of time, than that of 'Principal Debtor'. Moreover, when a 'Demand' is made requiring the payment within specified period Viz., 15 days, the 'breach occurs' or 'right to sue accrues', if payment is not made or is ref....
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....m the guarantee is given. The same logic prevails, under Section 60(3), when any insolvency or bankruptcy proceeding pending against the personal guarantor in a court or tribunal and a resolution process or liquidation is initiated against the corporate debtor. Thus if A, an individual is the subject of a resolution process before the DRT and he has furnished a personal guarantee for a debt owed by a company B, in the event a resolution process is initiated against B in an NCLT, the provision results in transferring the proceedings going on against A in the DRT to NCLT. 96. This court in V. Ramakrishnan (supra), noticed why an application under Section 60(2) could not be allowed. At that stage, neither Part III of the Code nor Section 243 had not been notified. This meant that proceedings against personal guarantors stood outside the NCLT and the Code. The non-obstante provision under Section 238 gives the Code overriding effect over other prevailing enactments. This is perhaps the rationale for not notifying Section 243 as far as personal guarantors to corporate persons are concerned. Section 243(2) saves pending proceedings under the Acts repealed (PIA and PTI Act) to be under....
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....h moratorium is in relation to the debt and not the debtor." The Indian Evidence Act, 1872 (1 of 1872): 81. Section 101 of the Indian Evidence Act, 1872, deals with 'Burden of Proof'. It cannot be ignored that as per Section 106 of the Indian Evidence Act, 1872, 'when any fact is essentially within the knowledge any person the 'burden of proving' that fact upon him'. Adjudicating Authority under I & B Code, 2016: 82. An 'Adjudicating Authority' ('Tribunal') is not a 'Court of Law' and it does not determine a 'Money Claim' or 'Civil Suit', in a summary proceeding as per Judgment of this 'Tribunal' dated 18.11.2019 in Hardeep Singh Sawhney v. Sawhney Builders Pvt. Ltd. (vide Comp. App (AT) (INS) 1147 / 2019). It must be remembered that the 'Proceedings under I & B Code, 2016' are not adversial in character. 83. On behalf of the 1st Respondent/Bank, it is pointed out before this 'Tribunal', that the 'Appellant/Personal Guarantor' of the 'Corporate Debtor' had executed the 'Personal Guarantee' by representing that he is an 'Indian Citizen' residing in India, which is evidenced from the 'Resident Address' shown in 'Guarantee Agreement' Viz., the address in India. Moreover, all t....
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....on to assets or property of the corporate debtor, including a personal guarantor of a corporate debtor, as the case may be, situated any place in a Country outside India, etc. 90. In the instant case, the Statement of Account filed together with the Company Petition before the 'Adjudicating Authority' proves that the 'Sum' is due and payable by the 'Personal Guarantor'. Added further, the execution of 'Revival Letter' dated 10.08.2016 by the 'Appellant / Personal Guarantor', acknowledging its 'Liability', in respect of the '1st Respondent/Bank/Financial Creditor', after two years' from the date of 'Execution of the Guarantee Agreement', acknowledging its 'Liability' shows the 'Subsistence of a Valid Guarantee Agreement'. 91. In terms of the ingredients of Section 95 of the I & B Code, 2016, the 1st Respondent/Bank has, in the instant case, proved the 'Debt' and 'Default' committed by the 'Appellant/Personal Guarantor' and undoubtedly, the 'Default' is more than Rs.1,000/- and that the Company Petition (IB) / 401 /95 of IBC / HDB / 2020, on the file of the 'Adjudicating Authority', is well within the 'Limitation Period' which is evident from the 'Statement of Account', 'Guarantee ....
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.... of an 'Adjudicating Authority' to determine the 'Debt Sum', at the time of 'Admission' of an 'Application' filed under the I & B Code, 2016. 97. In regard to the plea of the 'Appellant' / 'Personal Guarantor' that the 2nd Respondent/Corporate Debtor's Account became a 'Non- Performing Asset' on 26.12.2015 (in respect of the numerous Loans availed from the 1st Respondent/Bank) and that the 1st Respondent/Bank had issued a 'Recall Notice' dated 11.10.2017 to the 'Corporate Debtor' and others (including the 'Appellant'/'Personal Guarantor') inter alia mentioning that the Credit Facilities were secured by the 'Personal Guarantee' of Mr. Badri Kasthuri, A.N. VijayaRaghavan, Appellant/Personal Guarantor and Corporate Guarantee of M/s. Sunpower Solar Technick Pvt. Ltd., Hyderabad, this 'Tribunal' relevantly points out that Form C.4 ('Deed of Guarantee for Overall Limit') was executed by the 'Appellant' / 'Personal Guarantor' at 165, Lake View Road, West Mambalam, Chennai - 600033, in favour of the '1st Respondent/State Bank of India' and Clause 20 of the said 'Guarantee Agreement' clearly mentions that any 'Notice' despatched by the Bank by Registered Post or Certificate of Posting to t....