TaxTMI 
TaxTMI 
2025 (1) TMI 551
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....nkar Poddar & Anr. (hereinafter referred to as the first appeal) and Company Appeal (AT) (Ins.) No. 663 of 2024 titled as Vineeta Maheshwari Vs. State Bank of India & Anr. (hereinafter referred to as the second appeal). Both these appeals arise from the common order passed by the National Company Law Tribunal, Ahmedabad Bench (hereinafter to as the "Adjudicating Authority") on 23.02.2024 in CP (IB) No. 80 (AHM) 2021. 2. The first appeal has been filed under Section 61(1) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "the Code"), and challenges the order dated 23.02.2024, passed by the Adjudicating Authority in CP (IB) No. 80 (AHM) 2021. The appeal has been filed by the State Bank of India (SBI), the Financial Creditor, (hereinafter referred to as the "Appellant") against Mr. Gourishankar Poddar (hereinafter referred to as "Respondent No. 1") and Ms. Vineeta Maheshwari, the Resolution Professional (hereinafter referred to as "Respondent No. 2"). The case pertains to Respondent No. 1's liability as a personal guarantor for Raj Rayon Industries Limited (hereinafter referred to as "Corporate Debtor"). The appeal challenges the dismissal of the Appellant'....
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....e First Supplemental Joint Deed of Hypothecation were executed. 28.12.2007: The Second Supplemental Agreements were signed, increasing the loan amount. 25.11.2010: The Third Supplemental Agreements were executed, modifying the terms and increasing the facility. 05.07.2011: The Fourth Supplemental Agreements introduced further enhancements to the loan facilities. (iii) On 10.07.2013, Mr. Gourishankar Poddar, in his capacity as a director of the Corporate Debtor, executed a Deed of Guarantee ("2013 Guarantee") in favor of the SBI. This guarantee secured an increased loan amount of Rs.292 crores, as agreed under the Sixth Supplemental Working Capital Consortium Agreement. The guarantee explicitly stated that it was: * Irrevocable: It could not be withdrawn or revoked by Respondent No. 1. * Unconditional: The guarantee was not contingent upon any specific conditions or disputes. * Continuous: It covered all present and future financial obligations of the Corporate Debtor. (iv) The Corporate Debtor began defaulting on its repayment obligations in 2013. As a result, its account was classified as a Non-Performing Asse....
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....n to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors) Rules, 2019. The notice sought payment of Rs 1854 crore, inclusive of interest, and was issued in compliance with the procedural requirements of the Code. (x) Not receiving a satisfactory response to the Demand Notice, the SBI filed a petition under Section 95 of the Code on 23.04.2021, seeking to initiate insolvency proceedings against Mr. Gourishankar Poddar as a personal guarantor. The petition outlined Mr. Gourishankar Poddar's obligations under the guarantees and the outstanding debt owed by the Corporate Debtor. (xi) The Adjudicating Authority dismissed the SBI's Section 95 petition on citing alleged revocation of the guarantees by Mr. Gourishankar Poddar and further invocation of the guarantees being time-barred. (xii) The SBI has therefore filed the first appeal bearing Company Appeal (AT) (Ins.) No. 689 of 2024 seeking quashing of impugned order. (xiii) The Adjudicating Authority in the para 13 (k) of the impugned order observed the following: "k. On perusing the revival letter, it appears that it was signed by Ms. Rajkumari Kanodia and Mr. Su....
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....ppellant's ability to enforce the guarantee against Respondent No. 1 irrespective of subsequent developments. 9. The appellant further contends that the approval of the resolution plan for the Corporate Debtor on 05.10.2021 does not, by itself, discharge the liability of Respondent No. 1 as a personal guarantor. The Hon'ble Supreme Court, in State Bank of India v. V. Ramakrishnan [(2018) 17 SCC 394], clarified that Section 31 of the Code, which provides for the binding nature of a resolution plan on all stakeholders, does not extinguish the liabilities of personal guarantors. Moreover, the resolution plan approved in the present case explicitly preserves the rights of the appellant to proceed against the personal guarantors for any remaining dues. This principle is supported by the Judgment of Hon'ble Supreme Court in Maharashtra State Electricity Board v. Official Liquidator [1982) 3 SCC 358], wherein it was held that the discharge of the principal debtor by operation of law does not absolve the guarantor of liability. 10. The Counsel for appellant submitted that Respondent No. 1's attempts to revoke the guarantee through letters dated 24.03.2014 and 01.04.2014 are legally u....
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....ent case, any alleged variation in the terms of the credit facilities was undertaken with the knowledge and consent of Respondent No. 1 and does not absolve him of his obligations. 13. Finally, the appellant submits that the guarantees executed by Respondent No. 1 are in the nature of continuing guarantees, as defined under Clause 26 of the 2014 Deed of Guarantee. A continuing guarantee, by its very nature, remains in force until the obligations guaranteed are fully discharged. Ld. Counsel for the appellant cited the decision of Hon'ble Supreme Court, in Anirudhan v. Thomco's Bank Ltd. [AIR 1963 SC 746], wherein it was held that a guarantor's liability persists as long as the underlying debt remains unpaid. In the present case, the Deeds of Guarantee explicitly states that they will remain binding, until the entire debt owed by the Corporate Debtor is repaid in full. Consequently, Respondent No. 1's obligations under the guarantees continue unabated. 14. In light of the above submissions, the Ld. Counsel for appellant prays that this Tribunal be pleased to: a) Set aside the impugned order dated 23.02.2024 passed by the Hon'ble NCLT, Ahmedabad, in CP (IB) No. 80 (....
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....the Guarantor's intention to terminate his liability for future transactions. The law under Section 130 of the Indian Contract Act, 1872 allows for the revocation of continuing guarantees, and the Hon'ble Supreme Court in Margaret Lalita v. Indo Commercial Bank Limited [AIR 1979 SC 102] has upheld that such revocations relieve guarantors of future obligations. The Financial Creditor's failure to respond does not invalidate the Guarantor's right to revoke the guarantees, effectively terminating any future liability. 19. The counsel for the Respondent submitted that the Financial Creditor's claims are barred by limitation. As per Article 55 of the Limitation Act, 1963, the limitation period for enforcing a guarantee is three years from the date of breach or revocation. Here, the guarantees were revoked on 24.03.2014, starting the limitation period. The limitation period commenced on 24.03.2014 and expired on 24.03.2017. The Financial Creditor initiated proceedings on 09.04.2021, well beyond the prescribed period, making their claims legally untenable. The Hon'ble Supreme Court in Margaret Lalita v. Indo Commercial Bank Limited [AIR 1979 SC 102] ruled that such limitation periods a....
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.... Counsel for the Respondent prays that this Tribunal be pleased to: a) Dismiss the appeal filed by the Financial Creditor on the grounds that the claims are barred by limitation and invalid under applicable law. b) Declare the 2014 Guarantee as unenforceable due to misrepresentation, coercion, and procedural irregularities. Analysis and Findings 25. We have heard the learned counsels of both the sides in detail and examined the documents on record. The parties have also submitted their written submission which have been duly considered. 26. The key issues to be decided in the instant matter relates to: (i) Whether revocation of guarantee by the personal guarantor is valid? (ii) Whether changes in terms and conditions of the guarantee if any, would lead to novation? (iii) Whether the CIRP proceedings against the guarantor are maintainable on the grounds of limitation? We examine these issues one by one. 27. Regarding the first issue, Adjudicating Authority has held that the Respondent No.1 has resigned from the position of the Director of the CD on 06.03.2014 which was accepted by the Board on 18.03.2014. He wrote to the SB....
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.... (iii) Clause 8 of the 2013 Guarantee further specifies that the guarantee is continuous in nature for all present and future transactions and hence attracts applicability of Section 129 and 130 of the Act of 1872. Clause 8 reads as follows: "The Guarantee herein contained is a continuing one for all amounts advanced. To be advanced by the said Banks to the Borrowers in respect of or under the said Facilities as also for all interest, costs and other money which from time to time become due and payable..." (iv) Clause 11 reiterates the irrevocability and enforceability of the guarantee by stating as follows: "The Guarantee shall be irrevocable and enforceable against the Guarantors notwithstanding any dispute between the said Banks and the Borrower." (v) Clause 12 of the 2013 Guarantee further provides that any acknowledgment of debt by the Corporate Debtor shall be considered to be an acknowledgment by Respondent No. 1 and other guarantors. Clause 12 reads as follows: "The Guarantors affirm, confirm and declare that any balance confirmation and/or acknowledgment of debt and/or admission of liability given or promise or part payment m....
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.... Guarantee executed previously would be deemed to continue. Clause 26 of the 2013 Guarantee reads as under: "26. The Guarantors agree that the said Banks shall be at liberty to enhance the limits under the said facilities offered now/ sanctioned and /or extended further financial assistance to the borrower from time to time, without notice to the Guarantor(s) and all the terms and conditions stated herein shall continue to be applicable for such enhanced/ further limits and this guarantee shall remain a continuing one for all the amounts due and will not be affected or vitiated in any way whatsoever but will remain in full force and effect and binding on the Guarantors. " 30. We note from the aforesaid clauses of the 2013 Guarantee that: a. The guarantee is irrevocable, unconditional and continuous; b. Respondent No. I would be liable for all present and future transactions between Appellant and Corporate Debtor irrespective of any variation; and c. Any acknowledgment of debt on part of the Corporate Debtor shall be considered an acknowledgment of debt on part of Respondent No. 1 for the purposes of Section 18 and 19 of the Act of 1963. 31.....
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....gal recourse for revocation of guarantees if the same was executed under duress. The plea of duress was only taken in the year of 2021 when the question of enforceability of the 2014 Guarantee came into question. 34. We also note that the Respondent No.1 sent a letter dated 06.03.2014 to the appellant informing his decision to resign from the position of Chairman/ Managing Director to be effective from 31.03.2014. In response to the aforementioned letter, the Appellant sent a communication dated 12.03.2014 to Respondent No. 1 contesting the resignation of the Respondent No. 1 as the same constituted a breach of the undertaking dated 07.11.2013 issued to the CDR Cell. Relevant portion of the said Letter reads as under: "2. Your liability as a personal Guarantor will continue and as per the terms of Deed of Guarantee executed by you on various dates, in favour of the Consortium lenders, with State Bank of India as lead Bank... 3. Please note that the said Company's account is NPA as on 30.11.2013 and restructuring under CDR Mechanism is under process. As on 31.12.2013, the exposure to the Consortium stands at Rs. 600 crores (Approximately). Resignation from t....
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.... the bank, they continue to be liable to the bank for repayment of the amount which was due to the bank. Hence, this contention about their resignation and hence release from bank guarantee cannot be accepted." ( Emphasis supplied ) 37. The appellant has submitted that it is a well-established legal principle that a guarantor's liability, including its extent and the conditions under which it arises, is entirely governed by the terms stipulated in the contract of guarantee. In this regard, reliance is placed on the judgment of the Hon'ble Supreme Court in Syndicate Bank v. Channaveerappa Beleri and others [(2006)11 SCC 506], relevant para 9 is extracted below: "9. A guarantor's liability depends upon the terms of his contract. A "continuing guarantee" is different from an ordinary guarantee. There is also a difference between a guarantee which stipulates that the guarantor is liable to pay only on a demand by the creditor, and a guarantee which does not contain such a condition. Further, depending on the terms of guarantee, the liability of a guarantor may be limited to a particular sum, instead of the liability being to the same extent as that of t....
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....mpany) does not absolve the surety of his liability." (Emphasis supplied) It is clear from the above that the approval of resolution plan of Raj Rayon Ltd/ Corporate Debtor on 5.10.2021 in the CIRP proceeding does not discharge the liability of personal guarantor. This has been one of the contentions of respondent No. 1. 39. The Respondent No.1 on the other hand has relied upon the Judgment of Hon'ble Supreme Court in the case of Margaret Lalita v. Indo Commercial Bank Limited [AIR 1979 SC 102]. It is the argument of the Respondent that as decided in the aforesaid case the liability of the guarantor is limited to transactions prior to the revocation of the guarantee. This case emphasized that a guarantor can revoke a continuing guarantee for future transactions, but remains liable for those prior to revocation. However, in the present case, the respondent executed a subsequent irrevocable and unconditional guarantee on 29.03.2014, superseding the earlier guarantee. This 2014 Guarantee clearly waived any right to unilateral revocation, binding the guarantor until all liabilities of the corporate debtor were settled. The aforesaid precedent is distinguishable because t....
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....Finance Ltd. & Anr. [Civil Appeal No. 4565 of 2021]. The relevant para 14 of the Judgment is extracted below: "LIABILITY OF GUARANTOR / SURETY 14. As far as the guarantee is concerned, the law is very well settled. The liability of the surety and the principal debtor is co-extensive. The creditor has remedies available to recover the amount payable by the principal borrower by proceeding against both or any of them. The creditor can proceed against the guarantor first without exhausting its remedies against the principal borrower. Chapter VIII of the Contract Act contains provisions regarding indemnity and guarantee. Section 126 is relevant for our purposes, which reads thus: "126. "Contract of guarantee", "surety", "principal debtor" and "creditor".- A "contract of guarantee" is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the "surety"; the person in respect of whose default the guarantee is given is called the "principal debtor", and the person to whom the guarantee is given is called the "creditor". A guarantee may be either oral or written." A s....
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....ny variance is made without surety's consent in the terms of the contract between the principal debtor and the creditor, it amounts to discharge of the surety as to the transactions subsequent to the variance. Under the provisions of Section 133, surety can be discharged only when there is a variance made in the terms of the contract between the principal debtor and the creditor. Section 134 contemplates a situation where the principal debtor is released by a contract between the creditor and the principal debtor. In such a case, the surety is discharged. If by any act or omission on the part of the creditor, the legal consequence of which is the discharge of the principal debtor, the surety stands discharged. Section 135 is based on the same principle on which Section 133 is based. If there is a contract between the creditor and the principal debtor by which the creditor makes a composition or promise with the principal debtor, or gives time to the principal debtor or agrees not to sue the principal debtor, it amounts to discharge of the surety provided the surety has not assented to such a contract. If the creditor contracts with a third party to give time to the principal debtor....
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....ompanied by a promise to pay as per decision in Hetal Enterprises v. New India Assurance Company Ltd. 2012 (1CCC 458 Bom). Further, an acknowledgment under Section 18 of the Limitation Act, 1963 can be with respect to not only the property or Right, but it can be even in regard to the Liability. 66. An Acknowledgment of a liability made by the Principal Borrower should be considered as an acknowledgment of liability, on behalf of Guarantor. 67. A Revival Letter/ an acknowledgment, executed by the Principal Borrower on the authorization binds the Guarantor." 49. The Appellant invoked guarantee vide Notice dated 18.01.2018 against the Guarantor for making payment of Rs. 998.52 crores including interest as on 31.12.2017 and further interest, penal interest plus costs etc. from 01.01.2018 within 7 days from the date of the notice. The default occurred on 25.01.2018 i.e. 7 days from the date of notice. 50. Thereafter, the Appellant had on 15.02.2018, merely a month after the amounts became due filed Original Application No. 185 of 2018 titled State Bank of India v. M/s Raj Rayon Industries & Ors. before the Hon'ble Debt Recovery Tribunal-II, Ahmedabad, which is s....
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....until the amount owed to the creditor remains unpaid. The relevant clause 26 of the 2014 Guarantee is extracted below: "26. This Guarantee shall be a continuing one and shall remain in full force and effect till such, time the Borrower repays/redeems in full the Restructured, Facilities together with all Interest, liquidated damages, commitment charges, costs, charges and all other monies that may from time to time become due and payable and remain unpaid to the Lenders under the Restructuring Documents." 56. The limitation aspect can be seen in two ways. As the guarantee is a continuing one, the guarantor liabilities continues still such time entire outstanding amount is paid as provided by Clause 26 of 2014 agreement. This aspect has also been endorsed by Hon'ble Courts as seen in previous paragraphs. The Guarantor issued the demand notice after the CIRP proceeding against CD was admitted on 23.01.2020. This meant that the concerned Court has acknowledged the debt. Thereafter, a specific demand notice in terms of provisions of IBC was issued on 08.03.2021 which was well within the limitation period. The appellant filed petition under Section 95 read with Rule 7(2) of ....
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....1 was filed well in time and is maintainable. The Adjudicating Authority without going into the merits of the case had decided that the application was time barred. 60. On the basis of our findings on issues framed, we hold that contention of appellant has merit. The Adjudicating Authority has failed to comprehensively deal with the issues and the application has been rejected without examining the issues in detail. Company Appeal (AT) (Ins.) No. 663 of 2024 Submissions of the appellant 61. The counsel for appellant submits that the instant Appeal is preferred against the Impugned Order dated 23.02.2024 passed by the Hon'ble National Company Law Tribunal, Ahmedabad Bench, Ahmedabad in CP (IB) No. 80/AHM/2021, whereby the Hon'ble Adjudicating Authority while rejecting the petition filed by Respondent No.1 has made adverse observations, against the Appellant and held that the conduct of the Appellant as Resolution Professional needs to be inquired by IBBI [Para 13(k)], as being bad in law. The Appellant therefore challenges the impugned order only to the extent of making adverse observations against the Appellant and holding that the conduct of Appellant as Resolution Pro....
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....e Appellant. 68. The Ld. Counsel for the appellant vehemently argued that the adverse observations made by the Adjudicating Authority in the Impugned Order would cause serious prejudice and hardships to the Appellant. Therefore, the Appellant submits a compassionate view be taken on the remarks and it would be in the interest of justice to expunge the remarks/ observations made against the Appellant in the impugned order. 69. The Ld. Counsel for appellant has cited two cases of this Appellate Tribunal in support of their contention in 'Rathin Amishbhai Majmudar vs. M/s Kirtanlal & Sons. & Anr' in Comp. App. (AT) (Ins.) No. 546, 550 of 2024 and 'Deepika Bhugra Prasad vs. Rabindra Kumar Mintri' in Comp. App. (AT) (Ins.) No. 88 of 2024. In both these cases this Appellate Tribunal expunged the remarks against the RP wherein the Adjudicating Authority had not taken into consideration the submissions of RP and passed the orders with adverse remarks. Submissions of Respondent 70. The counsel for Respondent No.1 submitted at the outset, that he is not contesting the appeal to the extent of the observations made against the Appellant and issuance of directions to the IBBI as the....
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....ers sent by the Personal Guarantor/Respondent No. 2 and the revival letter dated 06.02.2016. In the list of events above the following is recorded against 06.02.2016: "The guarantor executed a revival letter dated 06.02.2016 in favour of the applicant." The guarantor referred to here is Respondent no. 2/ Gaurishankar Poddar and applicant being State Bank of India. 76. It's an admitted fact that the revival letter was never signed by Respondent No. 2. The adverse remarks of Adjudicating Authority are entirely based on this error by the Appellant/RP. 77. The Respondent No.1 has accepted that the error in the table has taken place due to a mistake on their part for which he has tendered his apology to this Appellate Tribunal. At the same time, they have pleaded that in terms of clause 26 of the 2013 agreement the aforesaid letter is valid even without intimation to guarantor. There is no requirement of signature in terms of the guarantee agreement. 78. We note from the aforesaid event list that the appellant has given categorical disclaimer that the aforesaid table is based on the documents submitted by State Bank of India/ Respondent No. 1, but no cognizance of t....