TaxTMI 
TaxTMI 
2025 (5) TMI 1842
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....ed the Appellant's petition under Section 7 of the IBC filed against M/s L.R. Builders Pvt. Ltd. (Corporate Guarantor), and allowed I.A. No. 4749/2022 filed under Section 65 of the Code, wherein the Respondent had alleged that the Appellant had initiated insolvency proceedings with fraudulent and malicious intent. 2. Aggrieved by the findings and the dismissal of the Section 7 petition, the Appellant has approached this Appellate Tribunal. The Appellant does not seek revival of the CIRP or reversal of the dismissal of the Section 7 petition, especially in light of the final settlement having been reached with the borrower. Instead, the limited prayer in this Appeal is to seek expungement of adverse findings and remarks passed under Section 65 of the IBC, which, if allowed to stand, cause serious prejudice to the Bank's institutional reputation and lawful recovery efforts. Brief facts of the case: 3. The brief facts of the case are as under: i. The present Appeal has been filed by the State Bank of India (Appellant) under Section 61 of the Insolvency and Bankruptcy Code, 2016 (in short 'Code'), against the impugned order dated 07.10.2024 passed by the National Comp....
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....to turn NPA by 03.12.2015. The borrower, represented by Mr. Kamal Gupta, assured that the accounts would be regularised by 30.11.2015, which did not happen. viii. The borrower's accounts were declared Non-Performing Assets (NPA) by SBI on 31.12.2015, and by e-SBBJ on 31.03.2016, in line with RBI norms. This was prior to merger of e-SBBJ with SBI on 01.04.2017. ix. Post-NPA, certain book entries and credit transactions were recorded in the loan accounts: * Several amounts, including Rs.3.60 Cr (11.01.2016) Rs.4 Cr (29.01.2016) Rs.7.60 Cr (17.02.2016), and others, were entered as crystallisations or EPC conversions. * An EPC amount of Rs.1.70 Cr disbursed on 21.03.2016 was crystallised on 03.06.2016. * On 10.11.2016 Rs.22.10 Cr was transferred internally between accounts. x. In view of the borrower's default, the Appellant initiated recovery measures under the SARFAESI Act, 2002, by issuing demand notices under Section 13(2) to the borrower and the Respondent (guarantor), followed by symbolic possession under Section 13(4). xi. Simultaneously, the Appellant also instituted proceedings before the Debt Recovery Tribunal (DR....
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....onal Guarantor fraudulently with malicious intent for the purpose other than the Resolution of Insolvency of the Corporate Debtor. 35. We are therefore, of the considered opinion that the Section 65 application needs to be allowed. Accordingly, we allow the application ie. IA-4749/2022 under Section 65 of the Code. No order as to costs. IB-612/ND/2022- In view of the order passed in IA-4749/2022, wherein the application filed under Section 65 of the Code by the Respondent/Lit Builders Pvt. Ltd. is allowed. Consequently, the main petition bearing IB-613/ND/2019 filed under Section 7 of the Code is dismissed." xx. Aggrieved, the Appellant filed Company Appeal (AT)(Insolvency) No. 2206/2024, challenging the dismissal of its Section 7 petition. However, the appeal was dismissed on 28.01.2025, as the borrower's account had already been settled through OTS. xxi. The Appellant has now filed the present appeal, limited to challenging the findings and observations made by the NCLT under Section 65 of the IBC, particularly the allegations of malafide intent and abuse of process. Submissions of the Appel....
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....he several clauses of the loan agreement and guarantee deed agreement which have not been properly examined by AA in the impugned order. These are as follows: * Loan Agreement - Clause 54: security is continuous. * Guarantee Deed - Clauses: Clause 1: liability is payable on demand. Clause 6: enforceable against all guarantors jointly and severally. Clause 8: the guarantee is continuing in nature. Clause 9: the Bank may at its discretion demand the principal and interest from the guarantors. Clause 11: guarantee is irrevocable. Clause 12 & 19: acknowledgments by borrower bind the guarantor. Clause 18: guarantee is independent of borrower liability. 10. The appellant in support of his contention has relied on the following Judgments: i. The Judgment of Hon'ble Supreme Court in SBI v. Indexport Registered & Ors., [(1992) 3 SCC 159 (Paras 11, 14-19)]. ii. The Judgment of Hon'ble Supreme Court in Sita Ram Gupta v. Punjab National Bank & Ors., [(2008) 5 SCC 711 (Paras 3-8)]. iii. The Judgment of Hon'ble Karnataka High Court in Raju Shetty v. Bank of Baroda, I.L.R. [1991 KAR 3303....
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.... being the corporate guarantor for P.P. Jewellers (Delhi). In these emails, the Respondent clearly requested a statement of outstanding dues so that the account could be settled. These emails are a clear and unambiguous acknowledgment of liability by the Respondent and should have been treated as an admission under Section 18 of the Limitation Act. Despite being material pieces of evidence, these emails were not considered at all in the Impugned Order. 17. RBI Export Credit Circular and findings in para 26 of the Impugned Order are irrelevant to Section 65. The Appellant respectfully submits that the Hon'ble NCLT, in paragraph 26 of the Impugned Order, wrongly interpreted the RBI Circular on Export Credit and held that disbursals made after the sanction period were irregular. It is submitted that RBI's Export Credit Guidelines govern classification of export loans but do not restrict a bank's power to disburse credit under sanctioned facilities. Further, even if there were any alleged irregularity in disbursal, that would not mean that the proceedings under Section 7 were fraudulent or malicious in nature. At best, these are matters of internal banking policy or regulatory compl....
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....uly executed loan agreements, corporate guarantees, revival letters, balance confirmations, and even subsequent emails from the Respondent acknowledging liability. The borrower account was classified as NPA on 31.12.2015 (by SBI) and 31.03.2016 (by e-SBBJ), and the liability was crystal clear. The mere fact that the borrower later entered into a One-Time Settlement (OTS) and repaid the dues does not mean that the earlier proceedings under Section 7 were fraudulent. Allegations such as improper disbursal, failure to auction mortgaged property, or use of alternate remedies - even if assumed correct - relate to internal banking decisions or commercial conduct. They do not equate to fraudulent or malicious initiation of IBC proceedings. The Appellant submits that these are civil disputes, not matters falling under the purview of Section 65, and therefore the Impugned Order invoking this provision is entirely misplaced. Submissions of Respondent: 21. The Counsel for the Respondent respectfully submits that this appeal by the State Bank of India (SBI) has no merit. The Hon'ble NCLT, in its order dated 07.10.2024, rightly dismissed the Section 7 application filed by SBI against L.R.....
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....t. Secondly, this was not a renewal, but a fresh sanction, which needed new loan and guarantee agreements. Thirdly, as per SBI, the borrower's partners changed in 2015 - from Kamal and Mukesh Gupta to Rahul and Mukesh Gupta. According to Section 38 of the Indian Partnership Act, this change ended LRB's guarantee. 25. The counsel further submitted inspite of the knowledge about defects in the aforesaid sanction letter, SBI still relied on this document, as otherwise, its case would have been time-barred. SBI now cannot say the letter was never acted upon, just to avoid responsibility. 26. SBI first claimed that the 16.04.2015 letter was a simple renewal. Later, it admitted it was a fresh loan that was never signed. As per law, an agreement that is not signed by the parties is not legally valid. In this regard, Ld. Counsel referred to This has been held in several judgments: Shubhmangal Mercantile (P) Ltd. v. Tricon Restaurants (India) (P) Ltd. ACE Printing and Pack Pvt. Ltd. v. Modern Food Industries (I) Ahaar International (India) Ltd. v. Sifter Project Services Rohit A. Kapadia v. Perviz J. Modi Also, SBI used this sanction letter in Fo....
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....94.14. This clearly shows that the Bank continued to disburse funds illegally after the default. 32. The counsel further submitted that the Bank was fully aware that the P.P. Jewellers Group accounts had become problematic. As per the Minutes of the Joint Lenders Forum Meeting dated 18.11.2015, the Bank knew that the group accounts had become SMA-2 on 03.11.2015 and would turn into NPAs on 03.12.2015, based on the RBI guidelines. Even after knowing this, SBI still disbursed funds. This meeting was attended by officers of SBBJ and other banks, and they clearly noted these facts. According to RBI's rule, if an account is overdue for 90 days, it becomes an NPA. Still, the Bank ignored this and acted against the rules. 33. Counsel for the Respondent submits that while explaining the alleged disbursal of Rs.22.10 Crores on 10.11.2016, SBI misled the Ld. Tribunal. SBI referred to additional affidavit filed before NCLT and bank statement of Account No. 32234455739 to claim that Rs.22.10 Crores were disbursed. But this is not true. The documents show that Rs.22.10 Crores were repaid by P.P. Jewellers (Delhi) - not disbursed. The disbursal mentioned in the Impugned Order actually rela....
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....l further stated that as the AA noted in Para 24 of the Impugned Order, the Bank's conduct clearly shows collusion. Even though P.P. Jewellers Pvt. Ltd. had not followed through with the One-Time Settlement (OTS), the Bank did not file any application to revive the process, even though it was allowed to do so by the order dated 09.01.2023. Also, in Para 31, the Tribunal noted that LRB had offered to sell its Netaji Subhash Place property to clear dues, but SBI refused. Instead, that space was being used by Kamal Gupta to run his showroom. All of this shows that the Bank was acting maliciously and did not want to recover its dues fairly. 41. Counsel for the Respondent submits that this isn't just an allegation. The Chief Metropolitan Magistrate (CMM) has clearly recorded findings in two separate orders dated 19.08.2020 and 04.06.2022 showing that some SBI officials were working hand-in-glove with Kamal Gupta, the partner of the main borrower. 42. After the Respondent brought these findings before the NCLT, the Bank hurriedly filed two Writ Petitions - WP(C) 6991/2024 and WP(C) 7017/2024 - before the Hon'ble Delhi High Court, asking that the adverse remarks be removed. Analy....
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.... the execution and reaffirmation of guarantees, and the events leading up to the initiation of CIRP. 48. On 31.12.2011, the erstwhile State Bank of Bikaner and Jaipur (e-SBBJ) sanctioned a term loan of Rs.60 Crores to the borrower M/s P.P. Jewellers (Delhi), a partnership firm. On the same date, the Respondent executed a corporate guarantee in favour of e-SBBJ, securing the said facility. Subsequently, on 23.02.2012, the Appellant (SBI) sanctioned a working capital loan of Rs.40 Crores to the same borrower. The Respondent once again executed a separate corporate guarantee in favour of SBI on the same day, independently securing this second facility. 49. Respondent stated that SBI had relied on the Sanction Letter dated 16.04.2015 in its Section 7 application and arguments before NCLT. SBI had used it to show that the original loan from 31.12.2011 was renewed. But this letter is false and invalid as it is not signed by anyone - neither by the borrower nor by LRB. It clearly mentions that it needs to be signed but was not. Secondly, this was not a renewal, but a fresh sanction, which needed new loan and guarantee agreements. Accordingly, he pleaded that there is Novation of Con....
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....count was declared NPA on 31.03.2016, and a detailed explanation for these two entries was submitted by the Bank before the Adjudicating Authority, though it was not taken into consideration. Of the alleged disbursals, the amount of Rs. 2.79 crore on 25.05.2016 was an Export Packing Credit (EPC), a pre-shipment facility credited directly to the exporter on behalf of the Borrower, not a disbursal to the Borrower; upon non-repayment, the EPC was crystalised on 03.06.2016. The amount of Rs. 22.10 crore on 10.11.2016 was also not a fresh disbursal, but an internal adjustment made by SBI to close A/c No. 32234455739 by crediting and debiting the same amount in another account of the Borrower (A/c No. 00000036244019723), as seen in both accounts. 55. Despite this clear documentary explanation submitted in the rejoinder and written submissions, the NCLT failed to pay attention to this material evidence. The NCLT thus wrongly concluded that an amount of Rs.22.10 Crores was disbursed after the loan account turned Non-Performing Asset (NPA). We observe that disbursal post declaration of account as NPA was one of the reasons cited by AA for allowing the Section 65 petition. This finding wa....
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....in contained shall be enforceable against the Guarantors notwithstanding the security aforesaid or any of the them or any other collateral securities that the Bank may have obtained or may obtain from the Borrower or any other person shall at the time when proceedings are taken against the Guarantors hereunder be outstanding and/or not enforced and/or remain unrealized. 8. The guarantee herein contained is a continuing one for all amounts advanced by the Bank to the borrower in respect of or under the aforesaid credit facilities as also for all interest caused and other monies which may from time to time become due and remain unpaid to the bank thereunder and shall not be determined or in any way be affected by any account or accounts opened or to be opened by the bank becoming nil or coming into credit at any time or from time to time or by reason of the said account or accounts being closed and fresh account or accounts being opened in respect of fresh facilities being granted within the overall limit sanctioned to the borrower. 9. Notwithstanding the Bank's rights under any security which the Bank may have obtained or may obtain the Bank shall have fullest ....
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....r other section of that Act or any other law, the Guarantors will not claim to be discharged to any extent because of the Bank's failure to take any or other such security or in requiring or obtaining any or other such security or losing for any reason whatsoever including reasons attributable to its default and negligence benefit of any or other such security or rights to any or other such security that have been or could have been taken. 19. The Guarantors agree that any admission or acknowledgment in writing signed by the Borrower of the liability or indebtedness of the Borrower or otherwise in relation to the above mentioned credit facilities and/or any part payment as may be made by the Borrower towards the Principal, sum hereby guaranteed or any judgement, award or order obtained by the Bank against the Borrower shall be binding on the Guarantors and the Guarantors accept the correctness of any statement of account that may be served on the Borrower which is duly certified by any officer of the Bank and the same shall be binding and conclusive as against the Guarantors also and the Guarantors further agree that in the Borrower making an acknowledgment or making a....
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....ondent has admitted its liabilities as guarantor in 2021 and engaged with Bank to ascertain exact amount of dues. Respondent vide emails dated 13.09.2021 and 15.09.2021 admitted its position as Corporate Guarantor and requested SBI to share the current statement of dues to enable it to repay the same. These communications constitute acknowledgment under Section 18 of the Limitation Act, 1963, and reaffirm that the liability was still subsisting as of 2021. The copies of the emails are extracted below : 63. This clearly show that the Respondent was still accepting its role as guarantor and acknowledging the debt even years after the so-called first default. As per Section 18 of the Limitation Act, such acknowledgments restart the limitation period. Legally, a party cannot on one hand plead that the debt is barred by limitation based on an earlier default, and on the other hand engage in subsequent acknowledgments and communications that reaffirm its liability. The conduct of the Respondent shows that the guarantee obligation was treated as ongoing and enforceable after the first disbursal. 64. We also note that the NCLT, in the impugned order, did not examine this contradictio....
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....tions 409 and 120B of the Indian Penal Code, was quashed by the Hon'ble Delhi High Court in the matter of 'Sudhir Kumar & Ors. vs. State of NCT of Delhi & Ors.' on 30.08.2024 in W.P. (Crl.) 2152/2022. 70. The Hon'ble Delhi High Court in its Judgment (supra) clearly stated that the FIR had no merit, was not maintainable, and was a clear misuse of the legal process. The relevant findings of the Hon'ble High Court in the Judgment (supra) are in paras 2, 35, 36, 41, 46 and 50. The same are extracted below: "2. Shorn of unnecessary details, factual matrix to the extent necessary and as averred in the writ petition is that Petitioners No. 1 and 2 are the Assistant General Managers of State Bank of India ('SBI) and Petitioner No.3 is the Chief Manager. Respondent No.2/LR Builders Pvt. Ltd. is the guarantor in the loans advanced by SBI to two Partnership concerns M/s. P.P. Jewellers (Exports) and M/s. P.P. Jewellers (Delhi). Both the Partnership Firms belong to the family of Kamal Kumar Gupta. In M/s. P.P. Jewellers (Exports), Kamal Kumar Gupta is a Partner with his wife Veena Gupta and in M/s. P.P. Jewellers (Delhi), Kamal Kumar Gupta is a Partner with his relative Mukesh ....
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.... to distance itself by urging that the corporate guarantee by mortgaging the subject property was with respect to the loan of Rs.56 Crores, which was settled and paid off and the property has nothing to do as a security for the other two loans. In fact, the allegation levelled in the FIR is that Kamal Kumar Gupta is in hand and gloves with the Bank officials and all are conniving to usurp the subject property. This argument is wholly misconceived and cannot be accepted firstly, for the reason that the Bank has a right in law to exercise lien with respect to all loan accounts taken by the borrowers in which Respondent No.2 is a guarantor and secondly, Rahul Gupta is the son of Kamal Kumar Gupta and Veena Gupta and all three are Directors of Respondent No.2. Further, Pawan Gupta who is the paternal uncle of Rahul Gupta is also a Director of Respondent No.2 and Kamal Kumar Gupta, Veena Gupta and Pawan Gupta as well as Respondent No.2 are guarantors in the account of M/s. P.P. Jewellers (Delhi). Therefore, initiating criminal proceedings against the Petitioners through the mode of an FIR is nothing but a desperate attempt to seek release of title deeds of the mortgaged subject property....
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....f the borrowers, liability of Respondent No 2 as well as Respondent No.3 as a director of Respondent No.2 etc. One of the contentions raised on behalf of Respondent No.2 is that Clause 4 was unilaterally incorporated in OTS 2020, whereby it was agreed that collateral security offered by Respondent No.2 for the credit facilities of M/s P.P. Jewellers (Exports) would not be released under OTS 2020 since corporate guarantee of Respondent No.2 also extended to credit facilities of Mis. P.P. Jewellers (Delhi). This dispute is admittedly pending before the DRT in IA No. 1561/2020 and vide order dated 16.12.2020, DRT directed that this issue will be subject to outcome of the I.A. Being aware of the pendency of all these disputes before the DRTs and significantly being party to the disputes, Respondent No.2 through Respondent No.3 maliciously chose to resort to criminal proceedings and the police also registered the FIR entering into the arena of a civil dispute which is beyond their domain and jurisdiction. In my view, the disputes being essentially of a civil nature and being sub-judice before the DRTs, it would be an abuse of the process of law if the criminal proceedings continue again....
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.... case of criminal wrongdoing or conspiracy made out. The allegations pertained to banking decisions and recovery efforts taken by officials of a public sector bank. The High Court specifically held that public servants discharging their official functions in the recovery of public dues cannot be subjected to criminal prosecution unless a clear, wilful, and mala fide intent is established, which was not the case here. 73. In State of Haryana v. Bhajan Lal (1992 Supp (1) SCC 335), the Hon'ble Supreme Court clarified that where an FIR is quashed for being baseless, no legal consequence can be attached to its contents or to proceedings that relied upon it. Moreover, SBI officials fall within the category of public servants. The Hon'ble High Court's reasoning in W.P. (CRL) 2152/2022 clearly relied on established jurisprudence, including the protection afforded under Section 197 CrPC, which requires sanction before prosecuting public officials for acts done in the discharge of official duties. 74. The Hon'ble Supreme Court, in Union of India v. P. Venugopal (2008) 5 SCC 1, held that remarks against public servants must not be made lightly, especially when they affect public confide....
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....24, the Respondent clearly told the Court that it did not wish to pursue any complaint or allegation against the Bank. This was after the same issues had earlier been raised in FIR No. 99/2019 and before the High Court in connected matters. 79. This admission is important because the Respondent cannot now claim - in the present proceedings that the appellant SBI acted with bad faith or filed the insolvency application with malicious intent. Once a party tells the High Court that it has no grievance, it cannot change its stand and make opposite claims in another forum on the same facts. 80. We find that contrary to the assertion of fraud by officials of SBI, the conduct of LR Builder/ Respondent herein are malafide and aimed to harass the public servants, who were performing their duties diligently by trying to recover public funds. The Respondent had filed criminal cases against the bank officials for their actions, which fall within the sphere of their prescribed duties. Even after admitting before the Hon'ble Delhi High Court that they have no grievances qua SBI, they have continued to pursue this appeal vehemently. This clearly reflects the malafide on their part. 81. T....