TaxTMI 
TaxTMI 
2025 (7) TMI 487
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....ndent), was dismissed. The Appellant had sought 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 f....
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....lar, however the efforts of the bank did not succeed. viii. Due to the continuing default, the Appellant 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 In....
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....e Principal Borrower, and expressly permitted multiple and successive invocations until full and final repayment of all dues. In particular, Clause 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 p....
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....y material to rebut this fresh invocation or the computation dated 08.12.2022. 11. Lastly, the Appellant submits that the law as laid down by the Hon'ble Supreme 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 a....
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....tion. There, as here, the invocation was under the same facilities, against the same borrower, and involved identical language. This authoritative ruling covers the present 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 F....
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....ring the Financial Creditor that the principal borrower's internal accruals and cash flow is enough to take care all the future debts service obligation requirement and sought removal of lien from the cash 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 not....
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.... first invocation of 05.03.2021 was only made for funds based working capital facilities for an amount of Rs. 60.87 Crores under Working Capital Facility and Rs. 16.98 Crores towards Rupee Term Loan (RTL). A second invocation 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 compou....
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....l Borrower from 29.12.2019 which was the date of NPA in accordance with the existing guidelines of Reserve Bank of India. In Part(V) of the Form-1 the appellant has given the sequence of events with regard to existence of Financial Debt, the amount and date of default. It can be seen 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 ....
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....n Part (iv) of Section 7 Petition relates to the Principal Borrower and the same is stated as 29.12.2019 which is the NPA date of Principal Borrowers account. However, in Part (v) of the Section 7 Petition which has the particulars of Financial Debt documents, records and evidence of default, has details of notices 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 1s....
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.... only the unpaid dues under the RTL and working capital facilities but also several additional heads of liability, making the second invocation materially different from the first. A breakup of the total dues as per the 8 December 2022 computation is as follows: * Rupee Term Loan outstanding (principal and interest): Rs.16.98 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 invoc....
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.... guarantee dated 31.12.2014 ). 40. A demand for payment under a corporate guarantee need not be limited to a one-time or all-inclusive invocation, unless the guarantee contract itself provides such a restriction. Here, the guarantees are described in express terms as "continuing," "irrevocable," and "on demand." Clause 18 of Guarantee-I and Clause 7 of Guarantee-II provide that the liability of the guarantor 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 sti....
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....ent, and the conduct of parties indicates a subsisting liability. We are satisfied that the guarantees in question are continuing guarantees, and the Appellant was legally entitled to issue a second invocation on 9 December 2022. 47. The Respondent has referred to the decision in IDBI Bank Ltd. v. Zee Entertainment Enterprises Ltd., Company Appeal (AT) (Insolvency) No. 939 of 2023, to argue that since the first invocation 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 I....
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.... adjudicating authority needs to be affirmed, but liberty need to be given to the appellant, if so, advised to file a Section 7 application for default of corporate debtor subsequent to 10A period i.e., a default subsequent to 24.03.2021." 49. In Zee Entertainment (supra), the Financial Creditor had made only one invocation of the guarantee, and that too during the Section 10A prohibition period. No second invocation was issued, and no new default was pleaded 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 09.12.202....