TaxTMI 
TaxTMI 
2025 (9) TMI 411
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....erred to as 'Impugned Order') passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench-V) in I.A. No.4194 of 2024 in C.P.(IB) No. 119/MB/2021. By the impugned order, the Adjudicating Authority has allowed I.A. No.4194 of 2024 to hold the liability of Respondent No. 1 to Rs. 25 crore under the Guarantee Deed of 10.08.2016. Aggrieved by the impugned order, the present appeal has been preferred by the Appellant-ICICI Bank. 2. The brief facts required to be noticed in deciding the matter are as follows: • ICICI Bank extended credit facility to Ushdev International Ltd. ("UIL" in short) on 24.12.2014 and a Credit Arrangement Letter was executed. • Ushdev Engitech Ltd. ("UEL" in short) issued a Corporate Guarantee in favour of Appellant-ICICI Bank for the loan facility advanced to UIL. This Corporate Guarantee was entered into on 10.08.2016. • On 16.10.2017, ICICI Bank invoked the Corporate Guarantee due to failure on part of UIL to repay the outstanding dues. • ICICI Bank filed an insolvency application against UEL which was admitted on 26.04.2023. The CIRP admission order was affirmed by this Tribunal on 02....
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....guarantee undertaken by them. When the two parties provided for a remedy in case of non-payment or delayed payment by the guarantor, the same remedy cannot be rendered obsolete or otiose by applying the cap in Clause 33 to apply to default interest as provided in Clause 3. It was therefore pointed out that there is a need to harmoniously read the provisions of Clause 3 and Clause 33 of the Corporate Guarantee which are operable in separate domains. Since there was no conflict in the operation of these two clauses as they work and operate in two entirely different spheres, the non-obstante clause contained in Clause 33 does not come into play in the present factual matrix. It is also submitted that the Adjudicating Authority failed to follow the settled principle of law that any commercial document or contract needs to be interpreted in a manner that it conforms to business common sense. It was vehemently contended that if the interpretation given in the impugned order is allowed to hold ground it would lead to unreasonable consequences and have wide ramifications of dis- incentivising payment of dues in a timely manner and foster an unhealthy trend of encouraging non-payment of due....
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....is entered into between two parties with open eyes and with a clear understanding about the nature of the contract, no party can claim anything more than what is covered by the terms of the contract. Thus, the liability of the UEL would depend purely on the terms of the Corporate Guarantee. It was further pointed out that Section 128 of the Indian Contract Act, 1872 clearly lays down that the liability of the surety is co-extensive with that of the principal debtor unless it is otherwise provided. Hence, in terms of Section 128 of the Contract Act, no interpretation that disregards the clearly defined contractual limitation of Rs. 25 Cr. as the maximum liability of the Respondent No. 1 can be permitted. 6. We have duly considered the arguments advanced by the Ld. Counsel for the parties and perused the records carefully. We also notice that the Ld. Counsels have relied on various judgments of this Tribunal, High Courts and the Hon'ble Supreme Court which we shall refer to while considering the submissions in details. 7. The short point for consideration is whether or not the overall quantum of liability of the guarantor in terms of the Contract for Guarantee was only Rs. 25 C....
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.... relation to the Facilities for the Borrower till receipt of the aforesaid amounts by the Bank to its satisfaction. .... 33. Notwithstanding anything herein above stated our liability under this guarantee shall not exceed Rs. 250 Million. This Guarantee will fall off in the event the outstanding of Borrower is less than or aggregate of Rs. 2,180 Million out of Rs. 2,500 Million (due as on date with ICICI Bank Limited under various facilities provided to the Borrower). 9. Having noted the relevant clauses of the Guarantee document, we may now notice the findings returned by the Adjudicating Authority before we dwell upon the rival contention of both parties. 10. When we look at the impugned order, we notice that the Adjudicating Authority has endeavoured to decide and determine whether the Guarantor under the deed of guarantee was liable only to the extent of the cap of Rs. 25 Cr. inspite of the deed of guarantee stipulating payment of default interest in the event of failure by the Guarantor to discharge the guarantee obligations. Relying on the judgment of this Tribunal in Shitanshu Bipin Vora Vs Shree Hari Yarns Pvt. Ltd. (2025 SCC Online NCLAT 694) the Ad....
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.... envisages a contract to perform the promise, or discharge the liability, of a third person in case of his default which is what is applicable in the present case. Further, it was admitted that it is undisputable that Clause 3(a) of the Guarantee Agreement spells out the nexus between the guarantee liability given by UEL qua the principal debt of UIL. It is also not contested that the terms of a Guarantee Contract can always restrict the liability of the guarantor to an amount which is less than what was the liability of the principal borrower to pay and that Clause 33 of the Guarantee Agreement provided that notwithstanding anything to the contrary, the liability of UEL under this guarantee was not to exceed Rs. 25 Cr.. In this backdrop, it was therefore contended that the Appellant Bank by claiming Rs. 25 Cr towards liability of principal borrower clearly did not breach Clause 3(a) of the Guarantee Document as it had restricted the guarantee liability amount to Rs. 25 Cr. which amount fell within the cap limit set by Clause 33. 14. When we see the material on record, we find that it has not been controverted by either Respondent No.1 or the RP that the Appellant while submitti....
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....tee liability on time and hence this liability had nothing to do with UIL's default as principal borrower. The Adjudicating Authority had however erred as it failed to appreciate that the default interest amount clearly assumed the colour of being UEL's own obligation as different from the liability of UIL and hence not covered by the ceiling of Rs. 25 Cr. contemplated under Clause 33. Per contra, it is the case of the Respondent No.1 that even though the Guarantee document provided for both the guarantee liability of the principal borrower and default interest for delayed payment, however, the Appellant Bank cannot claim anything more than what is covered by the terms of contract which has hemmed these liabilities with an overall cap of Rs. 25 Cr. 17. When we look at the construct of the Deed of Guarantee, we find that Clause 3 clearly stipulates that if the liability is not discharged by the Guarantor within the cure period, the Appellant became entitled to charge default interest on the outstanding guarantee liability of UEL. As per scheme of the Guarantee Deed, Clause 3(a) is immediately followed by Clause 3 which expressly provides that if the guarantor fails to pay the gua....
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....both the liability of the principal borrower and default interest for delayed payment. It was contended by the Ld. Counsel for Respondent No.1 that the reliance placed on the judgment in Topalsson case is misplaced since the facts in that case was distinguishable as it was in the context of a Services Agreement as distinctive from that of a Guarantee Agreement. Moreover, the clause restricting liability in Topalsson case had employed the phrase "subject to" which is distinct from the term "notwithstanding" used in Clause 33. It was further pointed that it has also been clarified by the Hon'ble Supreme Court in Chandavarkar Sita Ratna Rao Vs Ashalata Guram (1986) 4 SCC 447 that the terms "subject to" indicates a provision that yields to another, whereas "notwithstanding" signifies the overriding effect of the clause it introduces. 21. Much emphasis was placed by Respondent No.1 on the words "notwithstanding anything hereinabove stated" in Clause 33 to contend that as this clause commences with a non-obstante provision, it embraced the entire basket of liabilities including the principal, interest, charges and even default interest. Thus, even if Clause 3 gives benefit of the oper....
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....ve effect to all the clauses in the document should be adopted as against the construction which renders one or more Clauses to be nugatory. Hence, it was contended that Clause 33 cannot be considered in isolation. It has to be read harmoniously with Clause 3 which undisputedly provided for default interest. When the parties have consensually provided a remedy for non- payment or delayed payment by the guarantor by way of providing for payment of default interest, this cannot be rendered obsolete and redundant by reading the cap in Clause 33 to apply to default interest also. A non-obstante clause can have over-riding effect only in case of conflict between clauses and not otherwise. Hence, interpretation of these clauses in any other manner which lets one provision of the Deed of Guarantee to dilute or negate the effect of another provision is not tenable. It is therefore canvassed by the Appellant that Clause 3 of the Guarantee Agreement which deals with default interest was not obviated by Clause 33 of the Agreement. 24. To appreciate the facts at hand better, we may focus our attention on the use of the word 'liability" in Clause 33. When we look at the phraseology of Clause....
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.... there is no scope for any argument that Clause 33 by virtue of being a non-obstante clause will prevail and supervene to restrict the entire liability of the guarantor to a maximum of Rs. 25 Cr. towards meeting both the liability of UIL arising out of terms of Clause 3(a) and default interest payable by the guarantor for delay in discharging the guarantee obligation arising out of Clause 3. 26. We are also inclined to agree with the principles enunciated in the Topalsson judgment that when a clause is present in the Guarantee Contract for levy of interest on late payment, this substantial remedy cannot be circumvented by falling back on the liability cap with respect to principal amount as this would amount to denial of the benefit of the remedy for late payment which is integral part of the present Deed of Guarantee. Even if the Topalsson case was in the context of a Services Agreement, the applicability of the legal principles laid down in the above judgment cannot be lost sight of. These principles would be equally applicable to a Services Agreement and a Contract of Guarantee. 27. Payment of default interest by Respondent No.1 cannot be mixed up with the discharge of lia....
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....est upon default in payment. 30. By taking the cover that the Adjudicating Authority is not empowered to interpret a contractual document, the Adjudicating Authority cannot absolve themselves from not endeavouring to undertake a harmonious reading of all the clauses in the Guarantee deed or in finding out whether the clauses 3(a), 3 and 33 have any inter se conflict. This has led to a situation where the Adjudicating Authority has ended up viewing the clauses of the Deed of Guarantee in a skewed and fragmented manner leading to an absurd situation which could never have been contemplated between parties. Mere presence of a non-obstante provision cannot be sufficient ground for putting a fetter on the operation of another sui generis clause. No clause can be obliterated and its intent obfuscated if the clause is not in conflict with the overall construct and objective of the Deed of Guarantee as otherwise it would tantamount to deviating from the intended meaning of these clauses leading to inconsistent outcome and unintended consequences which does not meet with our countenance. 31. We have no doubts in our mind that Clause 33 of the Guarantee Agreement unequivocally and inco....