TaxTMI 
TaxTMI 
2022 (8) TMI 1158
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....hority' ('National Company Law Tribunal', 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. T....
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....ement 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 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 Appella....
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....ate Debtor vide email dated 11.8.2020 (attached at page 27, Reply of Respondent No.2 UICL in CA No. 892/2020, 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 Adj....
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....use such a penalty implies a prohibition. Similarly, in the case of Union of India v. Colonel L.S.N. Murthy & Anr. MANU/SC/1377/2011 : (2012) 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....
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....al Services Pvt Ltd. Parag Gupta & Associates dated (vide Civil Appeal No. 23988 of 2017) dated 11.10.2018, wherein at paragraph 27, it is observed as under: 27. "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 a....
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....Officer of the Bank and in proving such service it shall be sufficient if it is established that the envelope containing such notice, communication or demand was properly addressed and put 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 Parti....
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....Agreement', acknowledging his liability, which exhibits the 'Existence of a Valid and Subsisting Guarantee Agreement'. 31. The Learned Counsel for the 1st Respondent/Bank emphatically urges before this '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 Resp....
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....ction 3 (6) of the I & B Code, 2016 defines 'Claim', meaning: "(a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; (b) right to remedy for breach of contract under any law 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 cas....
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....pecifies that; "(1) The Central Government may enter into an agreement with the Government of any country outside India for enforcing the provisions of this Code. (2) The Central Government may, by notification in the Official Gazette, direct that the application of provisions of this Code in relation 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 ei....
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.... receive otherwise through an authorised person, any payment by order or on behalf of any person resident outside India in any manner. Explanation. - For the purpose of this clause, where any person in, or resident in, India receives any permanent by order or on behalf of any person resident outside India through any other person (including an authorised person) without a corresponding inward remittance 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 h....
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....after recording the reasons in writing, recommend for the initiation of prosecution and if the Director of Enforcement is satisfied, he may, after recording the reasons in writing, may direct prosecution by filing a Criminal Complaint against the guilty person by an officer not below the rank of Assistant Director. (1-C) If any person is found to have acquired any foreign exchange, foreign security or immovable property, situated outside India, 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....
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.... the 'Loan' are as under: Facility Amount Granted (Rs./Crores) Amount Disbursed (Rs./Crores) Term Loan (SBH) 8.78 8.78 Term Loan (SBT) 35.00 35.00 Term Loan - 1 (SBI) 34.18 34.18 Term Loan - II (SBI) 30.38 30.38 Cash Credit (SBH) 15.00 15.00 Cash Credit (SBI) 30.00 30.00 Corporate Loan (SBH) 3.00 3.00 Corporate Loan (SBT) 4.00 4.00 Letter of Credit (SBH) 30.00 30.00 Bank Guarantee / Letter of Credit (SBI) 35.60 35.60 Total 225.94 225.94 More 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 25,04,51,33....
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....t' that the underlying guarantee is not 'Valid', in the 'eye of law', in terms of Section 23 of the Indian Contract Act, 1872. 66. According to the 1st Respondent/Bank, the 'Guarantee Agreement' dated 13.05.2014 was executed by the 'Appellant', to obtain the financial facilities, availed by the Corporate Debtor / PPS Enviro Power Pvt. Ltd. In fact, the name of the 'Deed of Guarantee' for 'Overall Limit' dated 13.05.2014, executed by the 'Appellant/Personal Guarantor', to and in favour of the '1st Respondent/Bank' was to the tune of Rs.149.35 Crores (as made mention of in Form C of the 'Application' dated 16.10.2020 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, Ekkattutha....
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....ints out that the transaction of 'Issuance of Guarantee' is, a 'Capital Transaction' and the governing regulation is issued under 'Notification' no 'FEMA 8' / dated 03.05.2000, namely, 'The Foreign Exchange Management (Guarantees) Regulations 2000'. It is not out of place for this 'Tribunal' to make a significant mention that the 'Transaction' of furnishing 'Guarantee', by a 'Company' does not appear in the 'Balance Sheet', but comes below the 'Balance Sheet' as 'Contingent Liabilities' and 'Commitments', as the 'Invocation of Bank Guarantee' is subject to not meeting of obligation by 'any person'. 71. It is to be remembered that although, at the 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 int....
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....until the creditor has exhausted his remedy against the principal debtor for the reason that it is the business of the surety/guarantor to see whether the principal debtor has paid or not. The surety does not have a right to dictate terms to the creditor as to how he should make the recovery and pursue his remedies against the principal debtor at his instance. Thus, we are of the view that in the present case the guarantor cannot escape from her liability as a guarantor for the debt taken by the principal debtor. In the loan agreement, which is the contract before us, there is no clause which shows that the liability of the guarantor is not co-extensive with the principal 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 'C....
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...., facially, is to allow for pending proceedings to be adjudicated in terms of the Code. Section 243, which provides for the repeal of the personal insolvency laws has not as yet been notified. Section 60(2) prescribes that in the event of an ongoing resolution process or liquidation process against a corporate debtor, an application for resolution process or bankruptcy of the personal guarantor to the corporate debtor shall be filed with the concerned NCLT seized of the resolution process or liquidation. Therefore, the Adjudicating Authority for personal guarantors will be the NCLT, if a parallel resolution process or liquidation process is pending in respect of a corporate debtor for whom 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 resul....
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....s, and it is clear that in the vast majority of cases, personal guarantees are given by Directors who are in management of the companies. The object of the Code is not to allow such guarantors to escape from an independent and coextensive liability to pay off the entire outstanding debt, which is 67 2019 SCC OnLine SC 103 why Section 14 is not applied to them. However, insofar as firms and individuals are concerned, guarantees are given in respect of individual debts by persons who have unlimited liability to pay them. And such guarantors may be complete strangers to the debtor often it could be a personal friend. It is for this reason that the moratorium mentioned in Section 101 would cover such persons, as such 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 no....
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....ersonal Guarantors' of 'Corporate Debtors', irrespective of pending proceedings in the Court against the 'Corporate Debtor' under I & B Code. 88. In the decision in State Bank of India v. Ramakrishnan & Another, the Hon'ble Supreme Court of India has held that Section 14 of the I & B Code, did not apply to 'Personal Guarantor', but only applies to the 'Corporate Debtor'. The 'Creditor' can proceed against the 'Assets' of either 'Principal Debtor' or 'Surety; or both in no particular 'Order'. 89. Moreover, Section 234 of the I & B Code, 2016, 'Agreements with Foreign Countries' enjoins that the Central Government may, by 'Notification' in the 'Official Gazette' direct that the 'application of provisions of this Code in relation 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 ....
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....t cannot be brushed aside that a 'reasoned/speaking order', passed by an 'Adjudicating Authority', will have an appearance of justice. An 'unreasoned order' will be just and valid from the point of view of the 'Authority' who passes the same, but to the 'Affected Person', the said order is an 'unreasonable' and an 'illegal' one. 95. An 'Appeal', in 'Law', is an elongation of 'Original Proceedings' of the 'Adjudicating Authority' and an 'Appellate Tribunal', has same powers of an 'Adjudicating Authority' ('Tribunal'). In fact, the 'Propriety', 'Legality', 'Validity' of the 'impugned order', passed by an 'Adjudicating Authority' ('Tribunal') is the primary consideration in an 'Appeal'. 96. It is pointed out that it is not within the purview 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' d....
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....ters', the 'Revival Letter' dated 10.08.2016 acknowledging its liability in respect of the 1st Respondent/Bank/Financial Creditor (after 2 years from the date of execution of 'Guarantee Agreement'), the 'Petition' in CP(IB)/401/95(IBC)/HDB/2020 on the file of the 'Adjudicating Authority' ('National Company Law Tribunal', Hyderabad Bench - I, Hyderabad), is well within the period of limitation and therefore, the 'Contra Plea' taken on behalf of the 'Appellant/Personal Guarantor', is not acceded to by this 'Tribunal'. 99. In the light of foregoing detailed deliberations, this 'Tribunal' keeping in mind of a vital fact that the 'Appellant'/'Personal Guarantor' of the 'Corporate Debtor' ('1st Respondent in CP(IB) No. 401/95(IBC)/HDB/2020, was served with a 'Notice' and inspite of opportunity provided, the same was not availed by him before the 'Adjudicating Authority'), taking note of the fact that in CP(IB)No.407/7/HDB/2018, the 'Corporate Insolvency Resolution Process' was ordered on 13.08.2019 against the 'Corporate Debtor', based on the 'principle of law' that the 'Liability' of the 'Appellant'/'Personal Guarantor' being co-extensive with that of the 'Corporate Debtor' ('2nd Res....