TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 847
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.... (IB) No. 646(MB)/2024. By the impugned order, the Adjudicating Authority has admitted the Section 7 application of IBC filed by Catalyst Trusteeship Ltd- Financial Creditor. Aggrieved by the impugned order, the present appeal has been preferred by the Appellant- Suspended Director of Bombay Rayon Clothing Ltd.-Corporate Debtor. 2. Coming to the factual matrix which is relevant to be noticed for deciding the matter placed before us, we find that a Debenture Trustee Agreement ('DTA' in short) was executed on 12.10.2017 between Principal Borrower-Reynold Shirting Limited and Respondent No.1 in its capacity as the Debenture Trustee/Financial Creditor for 1700 Non-Convertible Debentures ('NCD'). Pursuant to the DTA, a Debenture Trust Deed ('DTD' in short) was signed on 14.10.2017 between the Principal Borrower and the Debenture Trustee- Financial Creditor. A Guarantee Agreement was executed by the Corporate Debtor-Bombay Rayon Clothing Ltd. in favour of the Financial Creditor on 14.10.2017. The Principal Borrower defaulted in the repayment obligation following which the Respondent No.1 on 16.06.2020 classified the NCDs as NPA which fell during the Section 10A prohibited period. An Ass....
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....ion"). The Adjudicating Authority admitted the Section 7 application initiating CIRP of the Corporate Debtor. Assailing the impugned order, the Appellant has come up in appeal. 3. Making his submissions, Shri Krishnendu Dutta, Ld. Senior Advocate for the Appellant submitted that the DTA and DTD executed between the Principal Borrower and the Financial Creditor and Guarantee Agreement by the Corporate Debtor-Corporate Guarantor in favour of Financial Creditor constituted two different transactions. The liability of the Corporate Debtor as Corporate Guarantor is to be read from the Guarantee Agreement. Reliance was placed on the judgment of the Hon'ble Supreme Court in the matter of Syndicate Bank V. Channaveerappa Beleri (2016) 11 SCC 506 wherein it has been held that the liability to pay by the guarantor arises only when a demand is made on the Guarantor. In the present case, the demand to pay was first made to the Corporate Guarantor on 16.06.2020/16.09.2020. Since the default notice fell within the Section 10A period, it was contended by the Appellant that the Section 7 application stood barred under Section 10A. 4. While admitting that the debt was restructured by the Restruct....
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....the Corporate Debtor was a continuing guarantee in terms of the Guarantee Deed which stood reaffirmed by the Restructure Letter on 27.12.2022. It was pointed out that the Syndicate Bank judgment supra, the Hon'ble Apex Court had drawn a distinction between the standard guarantee and a continuing guarantee. The Adjudicating Authority had rightly recorded that the Corporate Guarantor had undertaken continuing obligations to cover defaults by the Principal Borrower until full payment of dues under the DTD. In the present case since the Appellant has expressly admitted debt and default and the guarantee was continuing as can be deciphered from the terms of the Guarantee Deed, the date of default was not covered by the Section 10A period. 7. It was strenuously contended that the Corporate Debtor's contention that the restructure letter was designed to circumvent Section 10A is baseless since this restructuring was done at the instance of the Corporate Debtor which had acknowledged the debt and reaffirmed the corporate guarantee and had agreed to the consequences of non-payment under new terms. Thus, when the Corporate Debtor had voluntarily participated in the restructuring, they canno....
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....terms of Contract of Guarantee. This demand was made by the Respondent No.1-Financial Creditor by issue of another notice on 16.09.2020 by which the corporate guarantee was invoked. This date of guarantee invocation also fell squarely within the Section 10A period. It was asserted that in terms of proviso to Section 10A of IBC, no insolvency proceeding can ever be instituted against any entity including the Corporate guarantor for any default arising on or after 25.03.2020 till one year from such date. The first Section 7 application stood barred both against the Principal Borrower and the Corporate Debtor having been based on a default which date was hit by the Section 10A embargo. 12. It was contended that the Respondent No.1-Financial Creditor with the intention to overcome this statutory bar under Section 10A has cleverly placed reliance on the Restructuring Agreement of 27.12.2022 to assert that the date of default was 25.03.2023 and not the original date of default of 16.09.2020. It was pointed out that the Financial Creditor in their letter of 23.01.2024 have admitted that the Restructuring Agreement of 27.12.2022 was categorically revoked. Since the Restructuring Agreement....
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....gardless of any intermediate payment or discharge; 26. This Guarantee is a continuing guarantee and is without prejudice to and in addition to any other security or security documents already held of which the Debenture Trustee may hold hereafter on account or in relation to the redemption of Debentures in terms of Debenture Documents, as amended from time to time. Notwithstanding anything contained in these presents, this Guarantee shall remain in force till all the outstanding amounts under the Debenture Documents have been finally paid in full. 31. This Guarantee shall not be wholly or partially satisfied or exhausted by any payments made to or settled with the Debenture Trustee by any Obligor and shall be valid and binding on the Guarantor and operative until the Final Settlement Date. 33. The Guarantor makes and repeals the representations and warranties set out in the Debenture Trust Deed and the other Debenture Documents, including those specified in the Fourth schedule of the Debenture Trust Deed( which are incorporated herein by reference and shall apply mutatis mutandis, as if set out in full in this Guarantee) to the Debenture Trustee as of the date hereof and as o....
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....ct as extracted hereinbelow: PART-IV PARTICULARS OF FINANCIAL DEBT TOTAL AMOUNT OF DEBT GRANTED DATE(S) OF DISBURSEMENT Total Amount of Debt Granted: The total amount of debt availed by Principal Borrower, being the Issuer of 1700 NCDs / Debentures of face value of INR 10,00,000/- (Indian Rupees Ten Lakh Only) each, totally aggregating to INR 170,00,00,000/- (Indian Rupees One Hundred and Seventy Crore only) issued to ECL Finance Limited ("ECLFL") oh private placement basis. The Corporate Debtor, which is a group company of the Principal Borrower, is the corporate guarantor for the NCDs / Debentures issued by the Principal Borrower and the Corporate Debtor stood as Corporate Guarantor and executed a Guarantee Agreement dated October 14, 2017 ("Corporate Guarantee"). Date(s) of Disbursement: Particulars Amount disbursed(In Rs.) Date of Disbursement NCDs 55,00,00,000 Oct 25, 2017 20,00,00,000 Nov 07, 2017 20,00,00,000 Nov 20, 2017 40,00,00,000 Nov 27, 2Q17 35,00,00,000 Nov 30, 2017 Total INR 170,00,00,000/- * (Indian Rupees One Hundred and Seventy Crore only) *Subscribed by ECL Finance Limited. On, August 14, 2020, ....
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.... the Corporate Debtor and Principal Borrower regarding the default in payment of the second Instalment of INR 20,00,00,000/- (Indian Rupees Twenty Crore only) of restructured debt which was due on March 25, 2023, as per the restructuring schedule under the Restructuring Letter dated December 27, 2022 and requested to cure the same within a period of 5 (five) working days on or before June 26. 2023, failing which Debenture Holder will be constrained to cancel the Restructuring Letter dated December 27, 2022. Copy of the letter dated June 20,2023 issued by Debenture Holder is annexed herewith as Annexure 10. Thereafter. the Financial Creditor vide its letter bearing no. CTL/23-24/RSL/05028 dated January 23, 2024 addressed to obligors including Corporate Debtor, the Financial Creditor issued a recall cum Invocation of Guarantee for the NCD Facility (Notice of Recall cum Invocation of Guarantee) whereby the Financial Creditor provided a detail of defaulted instalments respectively and revoked the Restructuring Letter. Copy of the Notice of Recall cum Invocation of Guarantee dated January 23, 2024 is annexed herewith as Annexure 11. Thereafter, no response was received from Corporate De....
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....imed by the Respondent No.1-Financial Creditor in the second Section 7 application arises basis the default committed by the Corporate Debtor on 25.03.2023. From the particulars depicted at Part IV above, it is clear that the debt amount stood modified from the first Section 7 petition and a separate invocation was made for this amount. 20. To answer the question as to whether the guarantee invocation notice of 16.09.2020 got revived or not upon the withdrawal/revocation of the restructuring agreement, we are of the view that the Adjudicating Authority has correctly taken notice of the contractual arrangement recorded in the Restructure Letter to hold that the cause of action for initiating legal action arose both from default of the restructuring terms or from withdrawal/ termination of the restructuring agreement. In the present facts of the case, the termination of restructuring was not automatic but was dependent on the exercise of this choice by the Respondent No.1-Financial Creditor to revoke the restructuring in the event of failure to comply with the restructure terms. The restructure terms provided for independent events of default and such a default having undisputedly o....
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....the default in the Restructuring Agreement, the date of default automatically goes back to the original date of default. In other words, the invocation of guarantee which was done during Section 10-A period continued even if the debt was restructured and certain payments/adjustments made with respect to restructured debts. Therefore, the second Section 7 application continued to relate to the original default and therefore hit by the embargo of Section 10-A. 23. Per contra, it is the contention of the Respondent No.1 that it is misconceived on the part of the Appellant to claim that once invocation was done during the Section 10A period and was hit by the statutory embargo, then the entire debt gets wiped out. It was vehemently contended that for subsequent defaults after Section 10A, the debt liability can always be invoked again. It is also well settled that the bar under Section 10A does not extend to defaults that occur after 25 March 2021. Reliance was placed on the judgement of this Tribunal in Vinod Kumar v. Omkara Asset Reconstruction Private Limited in (CA)(AT)(Ins)No. 2265 of 2024 wherein it was held that Section 10A does not apply to any default that occurs subsequent t....