TaxTMI 
TaxTMI 
2023 (7) TMI 962
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.... of Rs. 1211,91,94,259 (hereinafter 'impugned demand notice'). 2. As per the facts of the case, the petitioner stood as a personal guarantor for a loan obtained by one FACOR Power Ltd. (hereinafter 'FPL') for a sum of Rs. 517.90 crores from the respondent i.e, REC Ltd. The loan agreement was dated 22.05.2009 (amended on 29.10.2010, 28.06.2013 and 12.11.2014). The deed of personal guarantee was executed on 24.08.2009 (amended and restated on 29.10.2010, 21.06.2013 and 22.01.2015). 3. The aforesaid loan, other than being secured by the petitioner in the capacity of a personal guarantor, was also inter alia secured by a corporate guarantee on behalf of one Ferro Alloys Corporation Ltd. (hereinafter 'FACOR'). 4. The respondent is a Maharatna Company under the Ministry of Power and is a 'State' within the definition of Article 12 of the Constitution of India. 5. On account of the default being committed by FPL in repaying the loan, the respondent in May, 2017 initiated Corporate Insolvency Resolution Process (hereinafter 'CIRP') in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016 (hereinafter 'IBC'), against FACOR, which culminated in a Resolution Plan bein....
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....ion that FPL is a subsidiary of the Corporate Debtor, and Appellant belongs to the erstwhile promoter group of the Corporate Debtor. In a similar case, the shareholders of FACL/ Corporate Debtor had challenged the Approved Resolution Plan before this Appellate Tribunal in Company Appeal (AT) (Insolvency) No. 207 and 208 of 2019 raising identical grounds, which was dismissed. It is not open to the Appellants to prefer a separate appeal on similar grounds being raised in Company Appeal (AT) (Ins.) No. 207 & 208 of 2019. It is not open for a Party to contend that certain points had not been urged and the effect of the Judgment can be collaterally challenged. 53. In Case of Anil Kumar Neotia v. Union of India, (1988) 2 SCC 587 at page 600 Hon'ble Supreme Court has held that: "17. Furthermore, we are of the opinion that the Law as declared by this Court in Doypack Systems Pvt. Ltd. [(1988) 2 SCC 299] is binding on the petitioners and this question is no longer res integrain view of Article 141 of the Constitution. See the observations of this Court in Shenoy and Co. v. CTO [(1985) 2 SCC 512 : AIR 1985 SC 621: (1985) 3 SCR 659] where this Court observed that the Judgment of this ....
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....), if any, shall stand disposed of." 10. Mr. Jayant Mehta, learned senior counsel assisted by Mr. Anirudh Wadhwa, Mr. Keshav Gulati, Mr. Shashwat Awasthi and Mr. Kanishk Garg, advocates appearing on behalf of the petitioner submitted that the issuance of the impugned demand notice was clearly an indication of the respondent's intention to approach the adjudicating authority under Section 95 of the IBC in relation to, what they term, a non-existent debt. The impugned demand notice was therefore without jurisdiction. 11. He also submitted that as on date, there exists no debt as against FPL that the respondent can recover, and therefore, there arises no question of the petitioner being in the position of a personal guarantor. 12. It is also submitted on behalf of the petitioner that in terms of the Resolution Plan dated 13.11.2019 of FACOR, the respondent had agreed to irrevocably transfer, assign and convey its entire debt given to FPL and all rights, title and interest thereon to FACOR, including all benefits, interest and claims thereunder, the recoveries in relation to such debt, and the rights to make claims pursuant to such debt, forever along with all rights thereto absolut....
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.... passed on to the Assignee. ..... 8.2 ENTIRE AGREEMENT This agreement supersedes all discussions and agreements (whether oral or written. including all correspondence) prior to the date of this Agreement among the parties with respect to the subject matter of this agreement." 14. According to the learned senior counsel for the petitioner, on the assignment of the loan i.e., the underlying principal debt, the respondent ceased to be a creditor of FPL, and as a result of it, no debt whatsoever was due from FPL to the respondent. It is, therefore, their case that since the underlying principal debt no longer vests with the creditor i.e., the respondent, they cannot invoke the guarantee. 15. It is also submitted on behalf of the petitioner that the guarantee is a secondary obligation securing the performance of a primary obligation, namely, the principal debt, i.e., the loan. It is thus, their case that since the primary debt was assigned by the respondent, there is no secondary debt, which they claim is inextricably linked to the primary debt that the respondent can attempt to realise. 16. It is also submitted on behalf of the petitioner that, independently and additionally, ....
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....um would immediately commence under Section 96 of the IBC and the appointment of Resolution Professional would take place under Section 97 of the IBC. 21. It is also submitted on behalf of the petitioner that it is only the Resolution Professional who determines whether the application is complete and examines the merits of the same for the first time under Section 99 of the IBC and it is only after the filing of the report under Section 99 that the Adjudicating Authority may reject the application under Section 100 of the IBC. 22. It is further submitted on behalf of the petitioner that noninterference in the demand notice will expose the petitioner to a wholly frivolous proceeding under Part III of the IBC where, the petitioner has to defend the application under Section 95 of the IBC and not the impugned demand notice. 23. Reliance has been placed on behalf of the petitioner on a decision of the Division Bench of the High Court of Gujarat at Ahmedabad in the case of Prashant Shashi Ruia v. State Bank of India MANU/GJ/2177/2021. A reference is also made to the follow up decision dated 11.03.2022 passed by the Debts Recovery Tribunal-I at Ahmedabad in the case titled as State B....
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....s of the debtor, the Resolution Professional is mandated to submit its final report to the NCLT who thereafter passes the final order of admission or rejection of the application. It is thus stated that there are sufficient safeguards provided under the IBC. The learned senior counsel for the respondent therefore submits that the debtor, at appropriate stages, will get ample opportunity to present, represent and defend his case before the passing of any final order(s). 31. On merits, it is submitted that personal guarantees were specifically kept outside the Resolution Plan dated 13.11.2019. 32. Reliance has been placed by learned senior counsel for the respondent on Clause 3(c)(iv)(g) of the Resolution Plan, the same is reproduced as under:- "(g) FACOR Power Limited ('FPL") - Upon Implementation of the Resolution Plan, as an integral part of this Resolution Plan, REC shall on Closing Date: (i) Release its charge on the shares held by the Company in FPL; (ii) Transfer, assign and convey its entire debt given to FPL and all rights, title and interest thereto to the Company; and (iii) Invoke and enforce or cause the invocation and enforcement of, as the case may be, the....
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....inancial Creditors as part of the Resolution Plan) from such guarantors and/or third party security providers, under their respective security documents." [Emphasis supplied] 34. It is thus stated on behalf of the respondent, that the personal guarantee and the third part collateral given to Financial Creditors to secure the debt of 'the Company' and FPL continued and such financial creditors had full right to enforce such securities even after Plan Effective Date for the recovery of the unrecovered financial debt. 35. It is further submitted that the Resolution Plan did not affect the validity and enforceability of the personal guarantees executed by the persons in the promoter group; the corporate guarantees executed by the third parties; and any other security created by a third party, as of the insolvency commencement date of 'the Company', for securing the debt of 'the Company' and the financial creditors were entitled to take all steps and remedies and recourse available to them under the applicable law for non-recovery of the uncovered financial debt. 36. It is clarified that the unrecovered financial debt would mean the total dues of the financial creditors less the ag....
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....ncy process, does not absolve the surety/guarantor of his/her liability which arises out of an independent contract. Paragraph no. 125 of the said judgment has been specifically pressed into service. 43. Learned senior counsel appearing on behalf of the respondent has placed reliance on a decision of the Division Bench of the High Court of Gujarat at Ahmedabad, which has also been cited by the learned senior counsel appearing on behalf of the petitioner, in the case of Prashant Shashi Ruia (supra), to submit that the Division Bench in this case did not interfere with the action initiated by the bank and rather left it to the Tribunal to apply its mind and take a final decision. 44. Reliance has also been placed on behalf of the respondent on a decision of the Hon'ble Supreme Court in the case of Phoenix ARC Private Limited v. Vishwa Bharati Vidya Mandir and Ors. (2022) 5 SCC 345, to submit that any petition having the effect of delaying the recovery proceedings of debt, normally, should not be entertained under Article 226 of the Constitution of India. 45. In rejoinder submissions, learned senior counsel appearing on behalf of the petitioner has distinguished the decisions relie....
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.... Krishan Industries v. State of Himachal Pradesh And Ors. (2021) 6 Supreme Court Cases 771. and Zonal Manager, Central Bank of India v. Devi Ispat Limited and Ors. (2010) 11 SCC 186. 50. It is also submitted that the demand notice can be quashed despite the availability of an alternative efficacious remedy if the same is found to be without jurisdiction and to support the said contention, reliance has been placed on a decision of this court in the case of Bhushan Power and Steel Ltd. v. Union of India, Through its Secretary Ministry of Finance and Ors. 2022 SCC OnLine Del 2337, a decision of the High Court of Bombay in the case of Murli Industries Limited, Through its Dy. Ex. Director v. Assistant Commissioner of Income Tax and Ors. 2021 SCC OnLine Bom 6187 and a decision of the High Court of Allahabad in the case of Covestro (India) Pvt. Ltd. v. State of U.P. and Anr. 2023 SCC OnLine All 41. 51. It is submitted that the NCLT has limited jurisdiction while approving the Resolution Plan, and therefore, the aspects highlighted in the instant case would not be adjudicated therein. To support the said contention, reliance has been placed on a decision of the Hon'ble Supreme Court in ....
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....iting order is an order issuing out of the High Court and directed to an inferior court or tribunal or public authority or a body susceptible to judicial review which forbids that court or tribunal or authority or body to act in excess of its jurisdiction or contrary to law." 57. Sir Michael Supperstone, James Goudie QC, and Sir Paul Walker's Judicial Review, 4th Ed., at page 561, in a lucid manner explains prohibition. It states as under: "PROHIBITING ORDERS The early form: prohibition 16.4-16.4.1 In its original form the writ of prohibition was used primarily to limit the jurisdiction of the ecclesiastical courts. It would issue on the application of a subject. It increasingly came to be used by the common law courts to limit the jurisdiction of the Chancery and Admiralty courts. By the 17th century it too was established as one of the most common and effective means of supervising local administration which was largely unsupervised by central government. The modern form: the prohibiting order 16.4.2 The modern prohibiting order is a coercive remedy granted by the High Court and directed to an inferior court, tribunal, public authority or any other body or persons who ....
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....nd Parisienne Basket Shoes Proprietary Ltd. v. Whyte 59 C.L.R. 369." [Emphasis supplied] 59. An important finding of the Hon'ble Supreme Court in S. Govinda Menon (supra), relating to the distinction between want of jurisdiction and the manner in which it is exercised, is particularly relevant for the present dispute. It reads as under: "A clear distinction must therefore be maintained between want of jurisdiction and the manner in which it is exercised. If there is want of jurisdiction then the matter is coram non judice and a writ of prohibition will lie to the court or inferior tribunal forbidding it to continue proceedings therein in excess of its jurisdiction." [Emphasis supplied] 60. The Hon'ble Supreme Court, in a seven-judge Bench decision, in the case of Hari Vishnu Kamath v. Syed Ahmad Ishaque &Ors. AIR 1955 SC 233, explicated upon the writ of prohibition. The material part of the judgement is reproduced as under: "15. ... When an inferior court takes up for hearing a matter over which it has no jurisdiction, the person against whom the proceedings are taken can move the superior court for a writ of prohibition, and on that, an order will issue forbidding the inf....
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.... does not divest the High Court of its powers under Article 226 of the Constitution in an appropriate case though ordinarily, a writ petition should not be entertained when an efficacious alternate remedy is provided by law. 27.5. When a right is created by a statute, which itself prescribes the remedy or procedure for enforcing the right or liability, resort must be had to that particular statutory remedy before invoking the discretionary remedy under Article 226 of the Constitution. This rule of exhaustion of statutory remedies is a rule of policy, convenience and discretion." [Emphasis supplied] 64. The observations of the Bombay High Court in the case of Shantilal Ambalal Mehta v. MA Rangaswamy 1977 SCC OnLine Bom 69 also resonate the aforesaid principle. The material part of the judgement is reproduced as under: "50. The question is whether it can be said that by insertion of cl. (3) in art. 226 the mere existence of another remedy for seeking redress which the petitioner prays for in his petition, the jurisdiction of the High Court to grant relief is taken away. It is important to note that even in respect of cases falling under sub-cls. (b) and (c) of cl. (1), the wri....
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....e jurisdiction of the civil Court to decide these questions. In the impugned Judgment no reason, much less a cogent or strong reason, has been given as to why civil Court could not be allowed to decide these questions. The impugned judgment does not state that the civil Court had either proceeded to act without or in excess of jurisdiction or that it had acted in violation of rules of natural justice or that it had proceeded to act under law which was ultra vires or unconstitutional or proceeded to act in contravention of fundamental rights. The impugned judgment does not indicate as to why the High Court did not consider it expedient to allow the civil Court to decide on questions of maintainability of the suit or its own jurisdiction. The impugned judgment does not indicate why the civil Court be not allowed to decide whether the suit was barred by virtue of Section 14 of the said Act or on principal of res judicata/estoppel. To be remembered that no fundamental right is being violated when a Court of competent jurisdiction is deciding rightly or wrongly matters before it." [Emphasis supplied] 67. Further in Isha Beevi v. Tax Recovery Officer 1975 AIR 2135, the Hon'ble Supreme....
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....btrusive that it leaves on its decision an indelible stamp of infirmity or vice which cannot be obliterated or cured on appeal or revision. If an inferior court or tribunal of first instance acts wholly without jurisdiction or patently in excess of jurisdiction or manifestly conducts the proceedings before it in a manner which is contrary to the rules of natural justice and all accepted rules of procedure and which offends the superior court's sense of fair play the superior court may, we think, quite properly exercise its power to issue the prerogative writ of certiorari to correct the error of the court or tribunal of first instance, even if an appeal to another inferior court or tribunal was available and recourse was not had to it or if recourse was had to it, it confirmed what ex facie was a nullity for reasons aforementioned. This would be so all the more if the tribunals holding the original trial and the tribunals hearing the appeal or revision were merely departmental tribunals composed of persons belonging to the departmental hierarchy without adequate legal training and background and whose glaring lapses occasionally come to our notice. The superior court will ordin....
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....emely careful and circumspect in exercising its discretion while granting stay in such matters. In these circumstances, the proceedings before the High Court deserve to be dismissed. [Emphasis supplied] 71. It must be noted that the observation of the Hon'ble Supreme Court in Phoenix ARC (supra), are not restricted to the examination of the stay granted by the High Court in the said case, but also relate to the question of entertaining a petition where an alternate statutory remedy is available. Paragraph no. 14 of the judgement is reproduced as under: "14. Applying the law laid down by this Court in the aforesaid decisions, it is required to be considered whether, in the facts and circumstances of the case, the High Court is justified in entertaining the writ petitions against the communication dated 13-8-2015 and to pass the ex parte ad interim order virtually stalling/restricting the proceedings under the SARFAESI Act by the creditor." [Emphasis supplied] 72. In United Bank of India v. Satyawati Tandon (2010) 8 SCC 110. relied upon in Phoenix ARC (supra), the Hon'ble Supreme Court in further detail explained the position of law in relation to entertaining a petition wher....
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....sons for not entertaining a petition before a writ court, where the relief being prayed for can be sought from a statutorily established forum. If the writ courts routinely grant reliefs-which could have been sought from an alternate forum established by way a statute-the court, in effect, obviates the will of the Parliament. It would be a disservice to the legislature and to the laws passed by it, to not give the requisite regard to its intention of dealing with a category of disputes through a specific procedure and specialised forums. 74. On similar lines, the Court of Appeal in Regina v. Panel on Take-Overs & Mergers, Ex parte Guinness Plc. (1989) 2 WLR 863. noted the following: "The rationale for this self-imposed fetter upon the exercise of the court's jurisdiction is twofold. First, the point usually arises in the context of statutory schemes and if Parliament directly or indirectly has provided for an appeals procedure, it is not for the court to usurp the functions of the appellate body. Second, the public interest normally dictates that if the judicial review jurisdiction is to be exercised, it should be exercised very speedily and, given the constraints imposed by....
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....which the resolution plan of FACOR was implemented) 80. It may be seen that Rule 7 of Rules, 2019 is a requirement mandated by Section 95(4)(b) of the IBC. Section 95 of the IBC reads as under: 95. Application by creditor to initiate insolvency resolution process.-(1) A creditor may apply either by himself, or jointly with other creditors, or through a resolution professional to the Adjudicating Authority for initiating an insolvency resolution process under this section by submitting an application. (2) A creditor may apply under sub-section (1) in relation to any partnership debt owed to him for initiating an insolvency resolution process against- (a) any one or more partners of the firm; or (b) the firm. (3) Where an application has been made against one partner in a firm, any other application against another partner in the same firm shall be presented in or transferred to the Adjudicating Authority in which the first mentioned application is pending for adjudication and such Adjudicating Authority may give such directions for consolidating the proceedings under the applications as it thinks just. (4) An application under sub-section (1) shall be accompanied with ....
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....as suggested that, by such a transaction, Hutchens' liability as a guarantor could be transformed into an independent liability to a different creditor from the creditor to whom the guaranteed debt remained owing. That suggestion would seem to lie ill with the basic principle that the debt owed by a guarantor, upon default by the principal debtor, is and remains the same debt as that owing by the principal debtor. Put differently, it would seem to be simply impossible, as a matter of basic principle, to assign the benefit of a guarantee or the security for it (as distinct from the property secured) while retaining the benefit of the guaranteed debt and thereby to convert the one debt owing by both principal debtor and guarantor to the one creditor into two debts, one owing by the principal debtor to the creditor and the other owing by the guarantor to the assignee. If it were otherwise, the position would seem to be that, by assigning the benefit of a guarantee and the guarantor's security and retaining the benefit of a principal debtor's indebtedness and the principal debtor's security, a creditor could effectively divorce the guarantor's liability from that of the principal debto....
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.... is clear. If, however, there has been no express assignment of the guarantee, the words used may nonetheless be construed as sufficiently broad to extend to related securities, if the assignee is able to show that the express assignment of the principal contract has impliedly carried with it the benefit of the guarantee; Consolidated Trust Co Ltd v Naylor; Farrow Mortgage Services Pty Ltd v Hogg and Cathie. But if the creditor simply assigns the benefit of the principal contract and the words of the assignment are limited to that transaction, the benefit of the guarantee securing it will not follow the assignment; International Leasing Corp. (Vic.) Ltd v Aiken. In this situation, neither the assignor nor the assignee is able to enforce the guarantee; International Leasing Corp. (Vic.) Ltd v Aiken; Hutchens v Deauville Investments Pty Ltd." [Emphasis supplied] 88. Further in Langbein v. Mottershead Investments Pvt. Ltd. (2020) FCA 1790., the Federal Court of Australia in paragraph no. 40 explained the ratio of Hutchens: "[40] It is also to be observed that it is impossible, as a matter of basic principle, to assign the benefit of a guarantee while retaining the benefit of the ....
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....nded the pronouncement in Hutchens (supra) and observed as under: [50] In these circumstances there was, in my opinion, no basis upon which Adelaide Bank was entitled to sue Mr Phontos on the guarantee. In Hutchens v Deauville Investments Pty Ltd [1986] HCA 85 ; (1986) 68 ALR 367 the holder of a guarantee sought to sue a surety in circumstances where it had assigned the principal debt. The High Court stated it was not entitled to do so. The court cited with approval a passage from the judgment of Jacobs J in International Leasing Corporation Ltd v Aiken [1967] 2 NSWR 427 at 439 to the following effect: If the debt is assigned but the guarantee is not assigned then the right in the original creditor to recover under the guarantee must at least be suspended so long as the debt is assigned. There cannot be two persons entitled to recover the amount of the same debt, one from the principal debtor, and so long as the principal debtor was in default, another from the surety. [51] The position is the same when the assignee of the principal debt seeks to sue on a guarantee which has not been assigned to it. [Emphasis supplied] 91. In the authoritative textbook of the Law of Guaran....
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....tee (or the security for it) cannot be assigned without the benefit of the principal transaction. [Emphasis supplied] 93. Further, Guest on The Law of Assignment by AG Guest, 1st Ed., at paragraph no.1-25 culls out the following from Hutchens (supra): "Where the benefit of the guarantee is assigned, but not the benefit of the principal debt, it has been held [Hutchens v. Deauville Investments Ptv Ltd. (1986) 68 ALR 367, 373] that the assignee cannot enforce the guarantee: there cannot be two persons entitled to enforce the guarantee: there cannot be two persons entitled to enforce the same debt. For the same reason, where the benefit of the principal debt is assigned, but not the benefit of the guarantee, it may be the that the assignor cannot enforce the guarantee. [International Leasing Corp. Ltd. v. Aiken (1967) 2 NSWR 427, 439]" 94. It is, therefore, the case that the judgement of Hutchens (supra) is not restricted to the particular facts of the case, but rather is a pronouncement on the general law of surety. 95. The declaration of Hutchens (supra) that an assignment of the underlying principal debt with an exclusion of guarantee, results into the assignor being unable ....
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....d by any contract between the creditor and the principal debtor, by which the principal debtor is released, or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor. 135. Discharge of surety when creditor compounds with, gives time to, or agrees not to sue, principal debtor.-A contract between the creditor and the principal debtor, by which the creditor makes a composition with, or promises to give time to, or not to sue, the principal debtor, discharges the surety, unless the surety assents to such contract. 136. Surety not discharged when agreement made with third person to give time to principal debtor.-Where a contract to give time to the principal debtor is made by the creditor with a third person, and not with the principal debtor, the surety is not discharged. 137. Creditor's forbearance to sue does not discharge surety.- Mere forbearance on the part of the creditor to sue the principal debtor or to enforce any other remedy against him does not, in the absence of any provision in the guarantee to the contrary, discharge the surety. 138. Release of one co-surety does not discharge others.-Where there are co-sur....
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....h the decision of Karnataka High Court in the case of T. Raju Shetty v. Bank of Baroda [AIR 1992 KARNATAKA 108] whereby the High Court held that in surety agreements, the surety can waive his rights available to him under the various provisions of Chapter VIII of the Act. It is in line with long established precedents that anyone has a right to waive the advantages offered by law provided they have been made for the sole benefit of an individual in his private capacity and does not infringe upon the public rights or public policies. This can be inferred from a reading of the Halsbury's Laws of England, Vol 8, 3rd Edn. at page 143 which reads as follows: As a general rule, any person can enter into a binding contract to waive the benefits conferred upon him by an Act of Parliament, or, as it is said, can contract himself out of the Act, unless it is shown that such an agreement is in the circumstances of the particular case contrary to public policy." This principle was reiterated in Lachoo Mal v. Radhey Shyam." [Emphasis supplied] 101. The relevant terms of the amended deed of guarantee dated 22.01.2015 entered into between the petitioner and respondent read as under: ....
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....rantee, the guarantor promises to pay the debt that the principal debtor owes to the creditor, after the assignment of the principal debt with a specific exclusion of a guarantee, the assignee may recover an amount forming part of the original debt from the principal debtor; and the assignor may make liable the guarantor, for the same amount, again forming part of the original debt. 105. For instance, if 'x' is the amount of debt that is left unrecovered, after the assignment takes place, the assignee can lay a claim on the principal debtor for an amount 'x' as the same has been assigned to it; and simultaneously the assignor may claim the amount 'x' from the surety. In effect, the amount 'x' is being recovered twice from two different individuals/entities, making the original debt 'x' become more than what it initially was. It is thus that the original debt gets split into two separate and disjointed debts. 106. It is this that Hutchens (supra) concludes, lies ill of the basic principle of guarantee-in which the guarantor secures the debt of the principal debtor. He does not, then, undertake a promise to pay an amount simpliciter, if at all such a promise could be enforceable in....
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....to the lease, the goods which were the subject matter of the lease, and the moneys due thereunder. At the same time, the creditor's right to enforce the (unassigned) guarantee is said to be "suspended" so long as the underlying debt is assigned to another." [Emphasis supplied] 109. The concerned NCLT must carefully examine the law on assignment, contract of surety, and the applicability of Hutchens (supra) if at all found applicable in the present factual scenario. 110. Having considered the ruling in Hutchins (supra), this court, at this stage, finds it appropriate to deal with the arguments of the learned senior counsel for the respondent relating to the present issue. 111. There are broadly three submissions of the respondent that are relevant to the above-mentioned issue, firstly, while relying upon the decision of Lalit Kumar Jain (supra), that the discharge or release of the principal debtor does not absolve the surety/guarantor of his liability; secondly, that the respondent is only seeking to recover the part of the debt that was left unrecovered after the CIRP of FACOR was concluded; and thirdly, that since the personal guarantees were specifically excluded from t....
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....ed under Section 134 of the Contract Act, 1872 by any contract between the creditor and the principal debtor by which the principal debtor is released or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor. But a discharge which the principal debtor may secure by operation of law in bankruptcy (or in liquidation proceedings in the case of a company) does not absolve the surety of his liability (see Jagannath Ganeshram Agarwale v. Shivnarayan Bhagirath; see also Fitzgeorge, In re)" XXX 125. In view of the above discussion, it is held that approval of a resolution plan does not ipso facto discharge a personal guarantor (of a corporate debtor) of her or his liabilities under the contract of guarantee. As held by this Court, the release or discharge of a principal borrower from the debt owed by it to its creditor, by an involuntary process i.e. by operation of law, or due to liquidation or insolvency proceeding, does not absolve the surety/guarantor of his or her liability, which arises out of an independent contract." [Emphasis supplied] 113. The pronouncement by the Hon'ble Supreme Court is binding on this court. The ....
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....law. It is their case, that the Resolution Plan is valid in law, its terms need to be adhered to, however, the effect of the terms of the Resolution Plan is that the respondent cannot enforce the guarantee given to it by the petitioner. 119. This court is, therefore, of the opinion that the pronouncement of Lalit Kumar Jain (supra) shall have no application in the facts of the present case. 120. The second submission of the respondent-that the respondent is only seeking to recover the part of the debt that was left unrecovered after the CIRP of FACOR was concluded-now deserves attention. 121. This submission is made by the learned senior counsel in order to impress upon this court that the debt which the principal debtor owed to the creditor after the said Assignment Agreement has not transformed into two debts but the debt still remains one. It is their case that they merely want to recover the unrecovered debt. 122. This court finds that this submission does not, in actuality, relate to the claim being made in Hutchens (supra). Indeed, it is the case that the respondent intends to recover what was left unrecovered after the CIRP of FACOR concluded, however, after the underlyi....
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.... the Resolution Plan. It is clarified that the personal guarantee and third-party collateral given to Financial Creditors to secure the debt of the Company and FPL shall continue with such respective Financial Creditors and such Financial Creditors shall have full right to enforce such securities even after Plan Effective Date The terms and conditions of the Resolution Plan including the insolvency resolution of the Company and the Total Consideration payable to the Financial Creditors is due, adequate and sufficient consideration for the obligations of REC in respect of FPL and for the transfer of the shares of FPL to the Company, as provided in this subclause (iv)(g)." [Emphasis supplied] 2. Clause 3(c)(xi) of the Resolution Plan reads as under: (xi) Save and except the transfer of shares of FPL pledged for the benefit of REC to the Company, as contemplated in Section 3(c)(iv)(g) and Annexure 2, the Resolution Plan shall in no way affect the validity and enforceability of (A) the personal guarantees executed by the persons in the promoter group; (B) the corporate guarantees executed by third parties; and (C) any other security created by a third party, as of the insolv....
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....ome amount of dispute as to the exact import of Clause 3(c)(xi) of the Resolution Plan. While the respondent contends that the clause is applicable, the petitioner submits that it is applicable only for the guarantees furnished to secure the loan of 'the Company', which Annexure 1 of the Resolution Plan defines as being FACOR. It is, therefore, the case of the petitioner, that since the guarantee which the petitioner had furnished to the respondent was to secure the loan of FPL, the said clause has no application. 130. However, the clarificatory sub-paragraph of Clause 3(c)(g)(xi) which was reproduced above does provide a 'clarification' that the personal guarantee given to the financial creditors, including the respondent herein, to secure the debt of FPL, shall continue with such respective financial creditors, and they shall have the full right to enforce such securities even after the Plan Effective Date. 131. Indeed, there are issues relating to the interpretation of contracts that arise, however, this court does not consider it appropriate to deal with these contractual private law questions in this writ petition. 132. The pronouncement of the Hon'ble Supreme Court in the ....
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....e of discriminatory practices being conducted on the part of the State. 35. This court cannot countenance the argument that, whereas, otherwise, a dispute owing to its private law origins ought to have been agitated before a civil court, merely because the entity so breaching the contract is a State or its functionary, the case is to be considered under Article 226 of the Constitution of India. Arbitrariness, under Article 14 of the Constitution of India needs to be pleaded in exclusion to claims of pure breach of contract. In the present petition, the petitioner has not been able to persuade this court that the breach so alleged on the part of respondents is of such a nature that it may be considered arbitrary and deserves to be entertained under the writ jurisdiction of this court alone." [Emphasis supplied] 135. In the instant case, this court is unable to accept the argument of the learned senior counsel for the petitioner that their rights under Article 14 of the Constitution of India have been violated. 136. The respondent in this case, has merely issued a demand notice in order to comply with the statutory requirement of Section 95 of the IBC. This notice was issued b....
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.... contends that the terms have been duly complied with as Clause 3(c)(iv)(g)(iv) is not to be qualified with a condition that the share transfer needs to be without consideration and also that the 'Closing Date' requirement of Clause 3(c)(iv)(g) is not intended to constrain the effect of, as also provide a deadline for, the option under Clause 3(c)(iv)(g)(iv); the respondent, inter alia, submits that the correct interpretation of the clause would reveal that the share transfer must take place without consideration and the requirement of 'Closing Date' is a general requirement of Clause 3(c)(iv)(g) which needs to be met by every sub-clause falling within Clause 3(c)(iv)(g), including Clause 3(c)(iv)(g)(iv). 143. In light of the analysis above, this court does not consider it fit to delve into these issues. 144. However, this court finds it appropriate to discuss the law relating to the reservation of right of creditor to proceed against the surety. What the learned senior counsel for the respondent has hinted towards, in their submissions before this court, is that there is an express reservation by the respondent of their rights as creditor to proceed against the surety. 145. At ....
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....gone. Language importing an absolute release may be construed as a covenant by the creditor not to sue the principal debtor, when that intention appears, leaving such debtor open to any claims of relief at the instance of his sureties. But a covenant not to sue the principal debtor, is a partial discharge only, and, although expressly stipulated, is ineffectual, if the discharge given is in reality absolute. In this case, the acceptance of Marshall as full debtor, in room and stead of Wakeham, which constituted a complete novation of the debt, necessarily operated as an absolute release of Wakeham, and it is therefore in vain to contend that such novation merely amounted to a covenant not to sue the debtor for whom the respondent was surety." [Emphasis supplied] 150. It seems to be the case that under the law of the United Kingdom, the distinction between a covenant not to sue and an absolute release has been blurred by subsequent decisions. In this context O' Donovan and Phillips' The Modern Contract of Guarantee (supra) at paragraph no. 6-071 noted as under: "While this principle has never been specifically overruled, later decisions have sought to circumvent it, by construi....
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....yar (1909) I.L.R. 33 Mad. 308 and also Dil Muhammad v. Sain Das [1927] A.I.R. Lah. 396. 16. It is true that the first two cases were decided in reliance upon the provisions of Section 137 of the Indian Contract Act which enacts that: Mere forbearance on the part of the creditor to sue the principal debtor or to enforce any other remedy against him, does not, in the absence of any provision in the guarantee to the contrary, discharge the surety. 17. But the two later cases base their reasoning also on the broader ground adopted by English law, and hold Section 137 to be merely declaratory of the law and to be enacted only to allay any doubts as to whether the same principles were applicable in India. With these decisions of the other High Courts in India may be contrasted the case of Ranjit Singh v. Naubat (1902) I.L.R. 24 All. 504 which decides that, in spite of the provisions of Section 137, the creditor's right against the surety is not preserved unless he sues the principal debtor within the period of limitation. Such a decision is inconsistent with the views held by the Courts in England and the majority of the Courts in India. In this conflict, their Lordships prefer....