AI Drafter 
TaxTMI 
TaxTMI 
2025 (4) TMI 635
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.... has been filed. 2. Brief facts necessary to be noticed for deciding the appeal are: i. IDBI Bank on request of Siti Networks Limited (borrower) sanctioned Working Capital - Cash Credit Facilities of upto Rs.25 Crore in favour of the borrower vide sanction letter dated 24.11.2008. ii. On 09.12.2009, IDBI sanctioned Working Capital Ltd. of Rs.50 Crore in favour of borrower. iii. On 29.05.2012, IDBI enhanced the Working Capital Facility up to Rs.150 Crore comprising of fund base limit of Rs.50 Crore and non-fund base limit of Rs.100 Crore in favour of the borrower against first pari passu charge on the assets of the company. iv. Loan agreement was entered on 17.07.2012 with borrower and IDBI Bank. v. Pursuant to facilities granted to the borrower, a guarantee agreement was executed by corporate debtor, ZEE Entertainment Enterprises Limited in favour of IDBI Bank, guaranteeing the obligation of borrower to maintain the Debt Service Reserve Account (DSRA). vi. Working Capital Facility was further enhanced in the year 2016. vii. On request of borrower, the Working Capital Facilities were renewed from time to time. ....
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....to which rejoinder was also filed. Adjudicating Authority after hearing the parties by impugned order has allowed the I.A.581/2023 and dismissed Section 7 application as barred by Section 10A. xix. Aggrieved by the order 19.05.2023, this appeal has been filed. 3. We have heard learned Sr. counsel Mr. R. Venkataraman ASG with Ms. Pratiksha Mishra appearing for the appellant. Learned Sr. counsels Mr. Arun Kathpalia and Mr. Abhijit Sinha has appeared for the respondents. 4. Learned Sr. counsel Mr. N. Venkatraman submits that adjudicating authority committed error in rejecting Section 7 application as barred by 10A. It is submitted that there was default on the part of the corporate debtor since September 2019, the amount in the DSRA was NIL post September 2019. Appellant had addressed a letter dated 02.03.2020 to the borrower, copy of which letter was also marked to the corporate debtor since DSRA amount was NIL since September 2019, no amount could be appropriated from the DSRA account to the loan account as a result of which borrower's account was declared NPA in December 2019. It is submitted that default on the part of the corporate debtor occurred prior to the 10A ....
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....rthwith thus default as alleged on corporate debtor, being on 05.03.2021 i.e., the period covered under 10A, application under Section 7 was clearly barred by time and has rightly rejected by the adjudicating authority. It is submitted that the various clauses of guarantee agreement dated 03.08.2012 indicates namely clauses 7, 9, 10, 11 & 27 that DSRA guarantee is on demand guarantee. The liability of the corporate debtor who has given limited guarantee is to arise only when guarantee is invoked and demand is made. It is submitted that prior to 05.03.2021 guarantee was never invoked by the appellant so as to create any default on the part of the corporate debtor. Existence of debt is not sufficient for filing a Section 7 application unless default is also committed by the corporate debtor. The reliance of counsel for the appellant on Clause 25 is misplaced. The clauses of the guarantee i.e., Clauses 7, 9, 10 & 11 clearly contemplate invocation of guarantee and making a demand from the corporate debtor. The said clauses cannot be nullified relying on Clause 25 only. It is well settled that terms of an agreement have to be read in a manner to give effect to the relevant Clauses, and ....
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....orporate debtor. Paragraphs 18, 19 and 20 of the synopsis of Section 7 is as follows: "18. The Borrower and the Corporate Debtor continued to default in their obligations and consequently, the account of the Borrower was classified as Non- Performing Asset (NPA) from on 29 December 2019: 19. The Borrower defaulted in its obligations under the Facilities and accordingly, the Financial Creditor recalled the entire Facility and demanded and called upon the Borrower to pay Rs 135,70,32.574.77 (out of which Rs 118,71,87,498.16 is towards the Working Capital Facility) within 15 days. The Financial Creditor did not receive any response from the Borrower to this. A copy of the recall letter dated 18 February 2021 is annexed hereto and marked as "Annexure-N"; 20. On 05 March 2021, the Financial Creditor invoked the guarantee provided by the Corporate debtor and called upon the Corporate debtor to pay Rs 61,97,33,612.80 together with further interest from 18 February 2021. A copy of the demand notice dated 5 March 2021 is annexed hereto and marked as "Annexure-O"." 10. Now we need to notice Part IV of the application. Entire Part IV of the Section 7 application ....
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....e grant of loan i.e., borrower shall maintain DSRA. Recital 2 to 4 are as follows: "2. One of the conditions for the grant of the Loan is that the Borrower shall maintain a Debt Service Reserve account (DSRA) wherein the credit balance at all times till the repayment of the Loan shall be equal to two quarters' interest for Term Loan portion and Working Capital Portion (to be maintained from the date of 1" disbursement of the Loan) and a further amount equal to one quarter principal installment (to be maintained one quarter prior to commencement of servicing of principal installments). 3. After commencement of principal installment payments, the credit balance to be maintained would be the sum total of the interest component and principal component as aforesaid. 4. The Guarantor has agreed to guarantee that the Borrower shall maintain the credit balance in the DSRA as more fully specified in recital 2 above. 12. The terms and conditions of guarantee as witnessed by the deed are captured in Clauses 1 to 27. Clauses 2 to 4 of the guarantee deed are as follows: "2. The Borrower shall open and maintain the credit balance as per the terms more f....
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....To the extent that the Borrower shall be unable to maintain the credit balance as required in recital 2, the Guarantor agree and guarantee to replenish the DSRA Immediately at the request of the Lender so as to ensure that the balance requirements as stated in recital 2 are maintained at all times. It is being understood and agreed by the parties that this guarantee can be invoked any number of times so as to conform to DSRA terms till the loan is repaid in full to the satisfaction of the Lender by the Borrower." 14. Clause 9 further provide that on default committed by borrower, the lender shall be at liberty to invoke the guarantee and require the amount as become due from the borrower from the guarantor. Clause 9 is as follows: "9. The Guarantor hereby confirms, agree and guarantee that in the event of the failure of the Borrower to maintain the DSRA or the terms specified from time to time, the Lender shall be at liberty to invoke this guarantee and recover the amount as become due from the Borrower from the guarantor along with all ancillary and incidental cost." 15. Clause 10 further provides that guarantor confirms and agree that immediately on receipt of noti....
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.... 7 application. One of the questions framed was as to whether notice dated 01.10.2020 issued by the bank can be treated to be notice on demand as contemplated in the guarantee and whether the guarantee on demand, where this Tribunal held that for default being committed within Section 3(12) of the IBC, the amount should be payable and is not paid by the debtor or corporate debtor and date of default of the principal borrower as guarantor shall depend on the contract of guarantee. In paragraph 24 following was held : "24. The scheme of I&B Code clearly indicate that both the Principal Borrower and the Guarantor become liable to pay the amount when the default is committed. When default is committed by the Principal Borrower the amount becomes due not only against the Principal Borrower but also against the Corporate Guarantor, which is the scheme of the I&B Code. When we read with as is delineated by Section 3(11) of the Code, debt becomes due both on Principal Borrower and the Guarantor, as noted above. The definition of default under Section 3(12) in addition to expression 'due' occurring in Section 3(11) uses two additional expressions i.e "payable" and "is not paid by t....
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....due fulfillment of their obligations under this Guarantee and any security of deposited with the Bank may be sold by the Bank after giving to the Guarantors a reasonable notice of sales and the said sum or the proceeds of sale of the securities may be appropriated by the Bank in or towards satisfaction of the said obligations and any liability arising out of nonfulfillment thereof by the Guarantors. 14. The Guarantors hereby agree that notwithstanding any variation made in the terms of the said Agreement of loan and / or any of the said security documents including reallocation/ interchange of the individual limits within the principal sum variation in the rate of interest, extension of the date for payment of the instalments, if any, or any composition made between the Bank and Borrower to give time to or not to sue the Borrower, or the Bank parting with any of the securities given by the Borrower, the Guarantors shall not be released or discharged of their obligation under this Guarantee provided that in the event of any such variation or composition or agreement the liability of the Guarantors shall not withstanding anything herein contained be deemed to have accrued an....
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....eed of Guarantee on respective dates inter alia agreeing to pay on demand and without demur to our clients alongwith interest, cost, charges, expenses and/or other money due thereon from time to time in terms of the Agreement of Loan for overall limits, Agreement of Hypothecation of Goods and Assets and Supplemental Agreements." 32. In view of the foregoing discussion, we arrive at following conclusions: (i) The Corporate Guarantee Deed dated 17.05.2019 is on demand guarantee deed and the default shall arise on the part of the Guarantor only when demand notice is issued as contemplated in the Deed of Guarantee. When the State Bank of India invoked the guarantee vide notice dated 01.10.2020, demand on the part of the Corporate Guarantee shall arise only subsequent to the notice dated 01.10.2020 i.e. non-payment of the amount within seven days i.e. default arise on 08.10.2020. (ii) Default on the part of the Guarantor having arisen on 08.10.2020 i.e. within the period which is covered as prohibited period under Section 10A, application under Section 7 was clearly barred by Section 10A. Issues No. II, III and IV are answered accordingly. (iii) The A....
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....lause 25 is a general clause where the obligations of the guarantor are not conditional on the receipt of any prior notice by the guarantors of the borrower. Demand notice by the lender to the borrower shall be sufficient notice to on the Demand of the guarantors. We may notice the judgment of the Hon'ble Supreme Court in 'Bank of India & Anr.' Vs. 'B.K. Mohan Das & Ors.' reported in (2009) 5 SCC 313, where Hon'ble Supreme Court has occasion to consider general principle of construction of a contract. In paragraph 31 of the judgment, following was laid down: "31. It is also a well-recognised principle of construction of a contract that it must be read as a whole in order to ascertain the true meaning of its several clauses and the words of each clause should be interpreted so as to bring them into harmony with the other provisions if that interpretation does no violence to the meaning of which they are naturally susceptible. (North Eastern Railway Co. v. Lord Hastings [1900 AC 260 : (1900-03) All ER Rep 199 (HL)] )" 23. In event, we accept the interpretation put by learned counsel for the appellant with respect to Clause 25 to mean that no notice or invocation of guaran....
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.... Subject: RE: Restructuring of debt facilities Importance: High Dear Sir, The restructuring plan/presentation and letter forwarded by you on 28.02.2020 does not specify clearly about the treatment of IDBI's facilities. In this regard, request you to provide clarity on your proposal with regard to our facilities and also arrange to clear overdue in your account. As Mr. Sanjay Berry (CFO) and you had confirmed that there would not be any restructuring of IDBI's debt. Please reply on the proposal immediately, otherwise we will be forced to initiate action against the borrower and guarantor company The total overdues in the account as on 02.03.2020, are as under; Term Loan Principal: Rs.10,41,00,000/- Due on September 30, 2019 Rs.10,49,00,000/- Due on December 31, 2019 Interest: Rs.25,84,874/- Due on September 30, 2019 Rs.23,42,431/- Due on October 30, 2019 Rs.22,84,554/- due on November 30, 2019 Rs.23,41,734/- due on December 31, 2019 CC limit (Interest Servicing) Rs.1,03,37,249/- Due on October 1, 2019 Rs.1,10,71,191/- Due on November 1, 2019 ....
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....and realising the dues at your own risk as to the costs and consequences thereof." 28. The said notice called upon the corporate debtor and made demand from corporate debtor to pay forthwith to IDBI Bank, sum aggregating to Rs.61,97,33,612/-. The above is thus letter of invocation of guarantee which clearly fell between the 10A period. Adjudicating authority thus cannot be said to have committed any error in coming to the conclusion that Section 7 application filed by the corporate debtor is barred by Section 10A. Adjudicating authority also in paragraphs 7.4 & 7.5 has come to the conclusion that demand notice dated 05.03.2021 was a first notice demanding payment from the corporate debtor. In paragraphs 7.4 and 7.5 following has been held: "7.4. This Bench finds that the Financial Creditor has in its demand notice dated 05.03.2021 stated the following:- "3. The Borrower has failed and neglected to maintain the DSRA Account, as mentioned in the Corporate Guarantee executed by you on August 3, 2012..." "4. The Borrower has failed and neglect to pay the dues of IDBI Bank as per its above letter..." "6. In the premises, we hereby call upon you and....
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....ed on or after 25th March, 2020 upto 25th March, 2021." 29. Learned counsel for the appellant has contended that even after 10A period came to an end on 25.03.2021, no payments have been made by borrower or the corporate debtor and default is continuing. It is submitted that in view of the fact that default is continuing, the application under Section 7 was clearly maintainable. It is further submitted that in Part IV of Section 7 application date of default was mentioned as 30.09.2019, when borrower defaulted in payment of its obligation under the Working Capital Facilities. There can be no dispute to the fact that borrower defaulted on 30.09.2019, but the default on the part of the guarantor has been noticed in the very next sentence, when the financial creator has pleaded that "financial creditor invoked, the guarantee on 05.03.2021 and the corporate debtor is in continuous default thus 05.03.2021 was the first date on which default on the part of the guarantor was pleaded". Default on the part of the borrower and guarantor are different dates as per the terms of the contract between the guarantor and the lender. 30. Learned counsel for the appellant has placed reliance on....
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....4], wherein it has been held as follows:- ''The mere fact that the observation of the Hon'ble Supreme Court that debt owed by the Corporate Debtor is not extinguished is the law declared by the Hon'ble Supreme Court, but their being clear prohibition for filing an application under Sections 7, 9 and 10 for default occurring in 10A period there is apparent case. The language of the statute provides no application for initiation of Corporate Insolvency Resolution Process of a Corporate Debtor shall be filed for any default arising on or after 25.03.2020. The provision cannot be read to mean that after the period is over the application can be filed. If such interpretation is accepted, the whole purpose and object shall be defeated. The purpose and object of introduction of Section 10A was to give relief to Corporate Debtor who committed default during the period which is covered by Section 10A. The debt is not wiped out is only for the purpose that other proceedings are not prohibited but Sections 7, 9 and 10 applications are clearly barred. No application can be filed, even after the expiry of the period under Section 10A for the default which occurred durin....