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2025 (7) TMI 487
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....ught initiation of Corporate Insolvency Resolution Process (CIRP) under the Code, on account of a default of Rs.193.82 crore by the Principal Borrower Siti Networks Ltd., whose liabilities were secured by unconditional and irrevocable corporate guarantees executed by the Respondent. 2. The Adjudicating Authority vide the impugned judgement held that the date of default fell within the "prohibited period" (i.e., between 25.03.2020 and 25.03.2021) under Section 10A of the Code, and therefore rejected the petition as non-maintainable. Aggrieved by the said dismissal, the Appellant has preferred the instant appeal under Section 61 of the code, challenging the erroneous interpretation of the default date and the applicability of Section 10A to the facts of the case. Brief Facts of the Case 3. The brief facts of the case are given below: i. On 24.11.2008, IDBI Bank Ltd. (Appellant) sanctioned a Cash Credit facility of Rs.25 crore in favour of Wire and Wireless (India) Ltd., which was later renamed as Siti Networks Ltd., (the Principal Borrower. The purpose of the facility was to meet working capital requirements, secured by a first pari-passu charge on movable and immovable assets, ....
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....ppellant issued a Recall Notice dated 18.02.2021 to the Principal Borrower, demanding immediate repayment of the entire outstanding amount of Rs.193.82 crore. ix. The Appellant served formal Demand Notice on 05.03.2021, upon the Respondent (Corporate Guarantor) invoking the corporate guarantees dated 31.12.2014 and 29.02.2016, calling upon the Respondent to pay the defaulted sum of Rs. 60.87 crore towards Working capital facility (fund based) and Rs.16.98 Crore towards Rupee Term Loan (RTL). There was no response or payment from the Respondent. x. the Appellant issued a Second Notice to the respondent invoking the corporate guarantee on 09.12.2022, in view of further default by the principal borrower and asking the respondent to deposit Rs. 166.78 crores within seven days from the receipt of the notice. This amount related to working capital and Term-loan. Despite ample opportunity, the Respondent failed to comply. xi. The Appellant filed a Section 7 Petition under Code on 11.01.2023, before the Adjudicating Authority seeking initiation of Corporate Insolvency Resolution Process (CIRP) against the Respondent as a Corporate Guarantor. The Appellant filed an Additional Affidavi....
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....e 15 of Guarantee I and Clause 7 of Guarantee II unambiguously provide that the guarantor shall be liable to pay the outstanding amounts "on demand" and that the guarantee shall not be exhausted by partial payments or earlier demands. These clauses, coupled with Clause 18 of CG-I describing the guarantee as a "continuing guarantee," render the Appellant's right to issue a fresh demand both lawful and enforceable. 6. Ld. Counsel further submitted that the first invocation of the corporate guarantees was made on 05.03.2021, for Rs. 60.87 Crore towards Working Capital Facility and Rs. 16.98 Crores towards Rupee Term Loan (RTL) facility shortly after the issuance of the Recall Notice dated 18.02.2021. However, this invocation was made during the Section 10A exclusion period, which lasted from 25.03.2020 to 25.03.2021. Though the invocation was valid, any default arising therefrom could not form the basis of a Section 7 application, in view of the statutory bar. 7. The Ld. Counsel submits that subsequent to this invocation, and despite partial payments made by the Principal Borrower (including Rs.24 Lakhs on 29.05.2021 and Rs.6.14 Crores on 12.04.2022), the Respondent continued to rem....
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....upreme Court in 'Dena Bank v. C. Shivakumar Reddy' [(2021) 10 SCC 330], para 144, and 'Kotak Mahindra Bank Ltd. v. Anuj Kumar', [MANU/DE/4116/2015 (Del HC)], supports the proposition that each default gives rise to a fresh cause of action, and where guarantees are continuing, repeated demands can be raised lawfully. In the present case, the Appellant's second invocation stands on firm legal footing, and the denial of admission solely on the basis of the earlier invocation is an error apparent on the face of the record. 12. Therefore, in light of the facts, contractual terms, repeated defaults, and settled jurisprudence, the Appellant humbly prays that the present appeal be allowed, the impugned order dated 16.06.2023 be set aside, and the application under Section 7 of the IBC against the Respondent be admitted to initiate CIRP. Submissions of the Respondent 13. The Learned counsel appearing for the Respondent submits that the impugned order passed by the Hon'ble NCLT on 16.06.2023 does not suffer from any infirmity and deserves to be upheld. It is submitted that the application under Section 7 filed by the Appellant is wholly barred by the express mandate of Section 10A of the ....
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....nt case squarely. 17. The Respondent also submits that the invocation of a guarantee is a one-time cause of action unless expressly permitted otherwise. There is no contractual provision permitting second invocation once full liability has been demanded. In this respect, the Respondent places reliance on 'Syndicate Bank v. Channaveerappa Beleri' [(2006) 11 SCC 506], paras 9-13, wherein the Hon'ble Supreme Court held that the right to sue a guarantor accrues only upon invocation, and not on the date of borrower's NPA. 18. In conclusion, the Respondent humbly submits that the present appeal is wholly devoid of merit, and that the Appellant, having invoked the guarantee within the Section 10A bar period, cannot resuscitate its cause of action through an unrelated demand letter issued 20 months later. The invocation of 09.12.2022 cannot be construed as a fresh default under the guarantees. Therefore, the impugned order does not warrant any interference and the appeal may be dismissed with costs. Analysis and Findings 19. We have gone through the records of the case and heard the Learned Counsels in detail. 20. There are three basic issues to be decided in the present case. (i) W....
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....sh credit account. Further, email dated 28.02.2020, a copy of which is marked to Mr. Chetan Sharma of the Corporate Debtor, is a communication from the principal borrower seeking suitable restructuring to help the principal borrower to overcome the liquidate issue and requested not to take any legal action against the principal borrower. The email dated 02.03.2020 is an email response from the Financial Creditor to the email dated 28.02.2020 seeking clarity on the restructuring request and informing the avoiding position as on 02.03.2020. The said email communicated that Financial Creditor will be forced to initiate action against the borrower and guarantor company. Communication dated 18.02.2021 and 05.03.2021 is a notice of recall of facilities and notice of invocation of guarantee respectively. This Bench does not find any demand having been made upon the Corporate Debtor asking it to pay the amount outstanding against the principal borrower in these communications except notice dated 05.03.2021." (Emphasis supplied) 24. In paragraph 4.11 of the impugned order the Adjudicating Authority gave the following findings: "4.11. In the present case, it is undisputed facts that the ....
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....ion was made on 09.12.2022, after a detailed computation as on 08.12.2022, which reaffirmed the continuing default and the failure of Corporate Guarantor to discharge its obligations. These were placed on record before the Adjudicating Authority. 27. To obtain the correct picture we have a look at the relevant portions of Form-1 are extracted below: "Part (iv)- Particulars of financial debt Amount claimed to be in default and the date on which the default occurred (attach the workings for computation of amount and days of default in tabular form) The total amount of default under the Working Capital Facility of Rs 150 crore and term loan of Rs. 125 crore is Rs. 168,45,83,258/- (Rupees One Hundred Sixty Eight Crore Forty Five Lakh Eighty Three Thousand Two Hundred and Fifty Eight Only) as on 08 December 2022 together with the applicable interest, penal interest, premia, charges etc. thereon at the contractual rates upon the footing of compound interest until payment/realization to the satisfaction of Financial Creditor. The Borrower defaulted in payment of its obligations under the Working Capital Facility on 30 September 2019 and under the 125 Cr. Term Loan Facility on ....
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....n from description in Para (C) and (D) that the first invocation was made on 05.03.2021 for Rs. 60.87 Crores towards Working Capital Facility (fund based) and by a separate letter of the same date for Rs. 16.98 Crores as rupee term loan. 29. From Para (G) and (H) of Part (V) we see that on 09.12.2022 a separate notice was issued to Corporate Debtor. This notice is also invocation of the Corporate Guarantee for Rs.166.78 Crores. This invocation was for both fund based and non-fund based Working Capital Facility, Rupee Term Loan and other dues. 30. We also have a look at the relevant Clauses 6 & 7 of the letter dated 09.12.2022 which is extracted below : "6. In view of the defaults committed by Borrower towards maintenance of DSRA, we in terms of aforementioned clauses of guarantee agreement, call upon you to immediately to maintain a balance of Rs. 166,78,34,329/- (Rupees One Hundred Sixty Six Crore Seventy Eight Lakh Thirty Four Thousand Three Hundred Twenty Nine Only) as on November 14, 2022 in DSRA within seven days from the date of receipt of this letter. 7. In case of your failure to comply as aforesaid, IDBI Bank shall be constrained to take such steps as may be necessar....
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.... dated 05.03.2021 and 09.12.2022. It is the settled position that in case the date of default is not specifically mentioned in the Section 7 Petition but the same can be ascertained from documents in Part (v) the same would be admissible. 34. The relevant findings in this regard relates to this Tribunal Judgment in Manmohan Singh Jain v. State Bank of India (supra) wherein it was held that: "47) This 'Tribunal' deal with the issues as raised by the Learned Counsel for the Appellant, the facts of the present case and law applicable to it. In the present Appeal, though the first date of NPA is with respect to Axis Bank i.e. 10.02.2017. However, the RBI circulars/Directives provides filing of independent application by the Financial Creditor i.e. the SBI before the Adjudicating Authority (NCLT) under Section 7 of the IBC. Accordingly, the Applicant the 1st Respondent herein filed application under Section 7 of the IBC for initiating the CIRP against the Corporate Debtor independently taking into the date of NPA/default and the amount of debt and default. There is no dispute with regard to the existence of debt and default committed by the Corporate Debtor. However, there is....
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.... crore * Fund-Based Working Capital Facility dues: Rs.60.87 crore * Non-Fund-Based exposure devolved: Rs.44.34 crore * DSRA (Debt Service Reserve Account) shortfall: Rs.39.90 crore * Treasury and other unadjusted items: Rs.4.69 crore * Total: Rs.166.78 crore 37. The DSRA obligation, in particular, arose under the financial covenants of the sanction letter, requiring the borrower to maintain a dedicated reserve for timely servicing of debt. Its breach gave rise to a specific contractual event of default, which is separate from the borrower's failure to repay the principal or interest. The inclusion of devolved non-fund-based facilities and treasury exposures also reflects defaults under other components of the credit package that were not part of the earlier invocation. 38. We find that the second invocation dated 09.12.2022 was valid, independent, and enforceable. The Adjudicating Authority failed to take cognizance of letter dated 09.12.2022 and did not examine its relevance to the CIRP proceedings. Accordingly, we find that the second invocation constitutes a distinct cause of action, and the Section 7 application filed by IDBI Bank on 11 January 2023 based on this de....
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....continues until full repayment of all dues, and that the obligation shall not be discharged by partial payments or earlier demands. 41. In law, a "continuing guarantee" under Section 129 of the Indian Contract Act, 1872, remains in force until revoked or until the obligation is satisfied in full. The creditor can make successive demands under such a guarantee until full payment is received. This principle is well supported by judicial precedents. In Dena Bank v. C. Shivakumar Reddy (2021) 10 SCC 330, the Hon'ble Supreme Court held that repeated defaults and acknowledgments under a continuing obligation can constitute fresh causes of action. 42. In Kotak Mahindra Bank Ltd. v. Anuj Kumar (supra) the Delhi High Court also explained that where a financial obligation is still unpaid, and where the contract is still in force- especially in the case of continuing guarantees or loan agreements- the creditor does not have to act only at the time of the first default. The creditor can act later, based on a new or repeated failure to pay. Each time the borrower or guarantor fails to meet their responsibility under the contract, the creditor gets a new right to sue. 43. The Respondent has n....
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....of the corporate guarantee by IDBI Bank was made on 05.03.2021- during the one-year bar period under Section 10A of the IBC- the Appellant was permanently barred from initiating insolvency proceedings, even at a later stage. The Respondent further claimed that the second invocation made in December 2022 was not a fresh or separate demand, but merely a continuation of the earlier invocation. On this basis, it was submitted that the present application under Section 7 is also barred. 48. This case has been cited by both the appellant and respondent in support of their case. The relevant paras 27, 34 & 35 are reproduced below: "27. In any view of the matter as noted, we have already noticed the pleadings in Section 7 application which was made by the IDBI Bank. IDBI bank in his Section 7 application has clearly pleaded that "on 05.03.2021, financial creditor invoked the guarantee provided by the corporate debtor and called upon the corporate debtor to pay Rs.61,97,33,612/-". Further in Part IV Serial No. 2 again following was pleaded "financial creditor invoked the guarantee on 05.03.2021 and the corporate debtor is in continuous default in terms of the guarantee agreement dated 03....
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....leaded after the expiry of the bar period. The Section 7 application in that case was filed entirely based on the default covered by the single invocation. Therefore, the Appellate Tribunal held that the application was not maintainable, as it was based on a default which happened during the period when filing was legally prohibited. 50. The Tribunal, however, gave liberty to the Financial Creditor IDBI Bank to file a fresh Section 7 petition if the default continues beyond the prohibition period of Section 10A. 51. The present case, however, is different from the Zee Entertainment (supra) in the sense that the IDBI Bank did issue a first invocation on 05.03.2021, but it also issued a second, separate invocation on 09.12.2022. That second invocation was based on a new and updated computation of the borrower's total dues as on 08.12.2022. The updated calculation included liabilities that were not part of the earlier invocation-such as non-fund-based limits, DSRA shortfalls, and treasury dues. This second invocation was made after the Section 10A bar period had ended and was based on a broader default that continued. The application under Section 7 was filed on 11.01.2023 - well af....