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2025 (12) TMI 115
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....Four Crore Seventy-Six Thousand Six Hundred Five only) as on 01.12.2021, under Section 95 of the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as 'Code'). Shri Gagan Gulati was appointed as Resolution Professional (RP) by the Adjudicating Authority. Resolution Professional is arrayed as Respondent No.1 in this appeal. 2. The appeal has been filed by Mr. Jagtar Singh (Appellant) impugning the order of Adjudicating Authority (AA) on the grounds that the AA has passed the order, solely on the basis of the Resolution Professional's report without examining or adjudicating upon the detailed objections he had raised regarding limitation; incorrect computation of claim; discharge of guarantee due to the 2019 settlement; the legal effect of his resignation; and revocation of guarantee. Feeling aggrieved by the non-speaking and mechanically passed order, and asserting that the initiation of PIRP is contrary to the mandate of law, barred by limitation, and based on an incorrect appreciation of facts, he has approached this Appellate Tribunal seeking the setting aside of the impugned order. Brief facts of the case 3. The brief facts of the case are as given below: ....
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....llate Tribunal by the Corporate Debtor bearing No. Company Appeal (AT) (Ins) No. 968 of 2019, wherein a settlement was reached between the parties and Justice (retd.) A.K. Sikri of Hon'ble SC of India was appointed as Mediator. His mediation led to signing of a comprehensive Settlement Agreement on 02.12.2019 between the Financial Creditor and the Corporate Debtor. viii. Under the settlement, the first Loan Account No. LNPIT00712- 130002234 stood restructured into a full and final settlement amount of Rs. 1.20 crore, payable in six instalments of Rs. 20 lakhs each between March 2020 and August 2020. The second Loan Account No. LNIPT03516-170006753 stood fully settled for a lump sum of Rs. 5 lakhs, and post-dated cheques were accordingly issued. ix. Several instalments were honoured by the Corporate Debtor, including the entire settlement of Rs. 5 lakhs towards the second loan, but the national lockdown imposed during March 2020 due to COVID-19 caused absolute disruption of business operations, impacting the repayment capability. x. The last repayment made by the Corporate Debtor to the FC in the loan Account No. LNIPT03516-170006753 was ....
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....mits that in May 2016, the Financial Creditor disbursed another loan for Rs. 41,32,383/- under Loan Account No. LNPIT03516-170006753, for which no deed of guarantee was executed by the Appellant. The Appellant had no privity of contract in respect of this second loan. Despite this, the Financial Creditor later sought to invoke liability of the Appellant for both loans indistinguishably. 7. It is submitted by Ld. Counsel that due to business stress and lack of working capital, the Corporate Debtor eventually defaulted in timely repayment as per agreed terms. As a consequence, the Financial Creditor issued a Notice of Termination and Reference to Arbitration dated 18.07.2017. 8. It is further submitted by the Ld. counsel for the appellant that the Applicant/Creditor had 3 years' period of Limitation, available in terms of Section 238A of IB Code read with Article 137 of the Limitation Act, 1963. The period of Limitation for filing the present application has already expired on 17.07.2020. The Applicant/Financial Creditor issued Demand Notice dated 25.01.2022, which was received by the Respondent on 28.01.2022, i.e. 17 months after the period of 3 years from the date of defa....
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....itor and corporate debtor. Ld. Counsel submits that the Appellant had executed a deed of guarantee, only for Loan Account LNPIT00712-1300002234 under the Deed of Guarantee dated 28.03.2013. The Appellant never signed any guarantee for Loan Account LNPIT03516- 170006753, and therefore cannot be made liable for the second loan under any circumstances. 15. Ld. Counsel further submits that Clause 8 of the Deed of Guarantee, relied on by the Financial Creditor, merely speaks of continuity of guarantee in respect of a series of transactions under the same agreement. As per Section 129 of the Indian Contract Act, a continuing guarantee applies only to transactions under the same contract, and does not extend to new or independent contracts, such as the second loan agreement dated 31.05.2016. Therefore, the second loan is outside the guarantee framework. 16. Further, Ld. Counsel submits that the Mediation Settlement Agreement, particularly Clause (j), explicitly records that Mr. Jagtar Singh and Mr. Sukhwant Singh agreed to provide their personal guarantees for fulfilment of obligations under the settlement. Thus, the parties expressly substituted the earlier contractual arrangement ....
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....reed as full and final settlement of Loan Account LNPIT03516-170006753. 22. It is the submission of Ld. Counsel that the Corporate Debtor paid the full amount of the second loan under settlement terms. Further, before repayment of the first loan could commence in accordance with the schedule, the Covid-19 pandemic struck, paralyzing business operations and causing the death of one director (Mr. Sukhwant Singh) while the surviving elderly director (Mr. Jagtar Singh, aged 86) was incapable of managing affairs. 23. Ld. Counsel further submits that Clause (k) of the Settlement Agreement only provides that the unpaid amount under the settlement shall be treated as admitted debt for limited purposes of filing a Section 7 petition. It does not revive the original loan amounts, nor does it impose liability on the Appellant as guarantor under the earlier guarantee deed, which already stood superseded. 24. Therefore, the only amount legally due is Rs. 1,20,00,000/-, i.e., the unpaid portion of the first loan settlement, and even that is the liability of the Corporate Debtor and not of the Appellant, whose guarantee stood substituted. 25. In light of the above submissions, facts, ....
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....ration Notice to the Corporate Debtor in relation to Loan Account No. LNPIT00712- 130002234, which was duly served upon the appellant on 26.07.2017. The Corporate Debtor failed to regularize the account despite service, thereby constituting a clear default in terms of the loan agreement. This notice marks the first crystallized date of default. 31. The Respondent submits that an Arbitration Award was passed on 28.12.2018 in favour of the Financial Creditor (Respondent No.2), confirming the outstanding dues. The Award conclusively acknowledges the debt and default, thereby extending the limitation period under settled jurisprudence. 32. Ld. Counsel submits that on 03.09.2019, the Hon'ble NCLT admitted the Section 7 Petition filed by Respondent No.2 against the Corporate Debtor in CP (IB) 619(ND)/2018, Intec Capital Ltd. v. Jagtar Singh & Sons Hydraulics Pvt. Ltd. The admission of the petition, based on continued default, once again constitutes a fresh acknowledgment of liability and extends limitation under Section 18 of the Limitation Act. 33. It is the submission of Respondent no. 2 that the Corporate Debtor came to the Hon'ble NCLAT with a settlement proposal, which led ....
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....mediation resulted in a detailed Settlement Agreement dated 02.12.2019, under which: • Loan Account No. LNPIT00712-130002234 was settled for INR 1,20,00,000. • Loan Account No. LNPIT03516-170006753 was settled for INR 5,00,000. As part of the settlement, the Corporate Debtor issued post-dated cheques. However, the Corporate Debtor failed to comply with the settlement terms, several cheques were dishonoured, and only partial payments were made. This non-compliance resulted in the settlement becoming unworkable. 41. Ld. Counsel for Respondent No.2 submits that Para K of the settlement categorically stipulates that the default in the first instalment or any two consecutive instalments would constitute default and entitle the Financial Creditor to file a fresh Section 7 petition, which the NCLT shall admit forthwith. The Corporate Debtor failed repeatedly, thereby triggering the consequences of Para K. The Para K of the agreement is extracted below: "k. It is agreed between the parties that on the recording of this settlement by the Hon'ble NCLAT. IBC Petitions filed by the Financial Creditors before the NCLT shall be disposed of on th....
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.... comply. In case of failure of the agreement, this Appellate Tribunal directed that the order setting aside the impugned order dated 3rd September, 2019 shall stand recalled and the Corporate Insolvency Resolution Process will continue. Thus, the breach is not merely of a private settlement but of the binding orders of this Hon'ble Tribunal. 45. The Respondent No. 2 submits that this Hon'ble Tribunal vide order dated 15.03.2021 again modified the terms and allowed the promoters to clear 50% dues by March 2021 and the remaining by June 2021. Even these revised conditions were breached due to due to failure of the Appellant and other promoters. 46. Respondent No.2 submits that the settlement dated 02.12.2019, being executed under express directions of this Hon'ble Tribunal, cannot be treated as a fresh, novated contract under Section 62 of the Contract Act. Non- compliance of the settlement revived the original liability under the loan agreement, making both the Corporate Debtor and the Personal Guarantor jointly and severally liable. 47. In view of the above submissions, the Ld. Counsel for Respondent No.2 prays that this Hon'ble Tribunal may be pleased to dismiss the prese....
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.... as the only event that matters. The relationship between the creditor and the Corporate Debtor continued far beyond this date. The Corporate Debtor participated in arbitration proceedings, faced admission of CIRP in 2019, and then approached this Appellate Tribunal with an offer of settlement. At that stage, on the request of the parties, mediation was conducted under the leadership of a former Judge of the Supreme Court, and the settlement dated 02.12.2019 came into existence. This settlement was not merely a private compromise between the debtor and creditor; it was placed before us in the appellate proceedings; agreed to by the parties; and expressly recorded in an order of this Tribunal dated 06.12.2019. Therefore, the obligations arising from the settlement were backed by judicial authority and carried legal sanctity. 53. The relevant portion of the order of this Tribunal dated 06.12.2019 as recorded in paragraph 11 is extracted below: "06.12.2019: 11. Terms of Settlement as recorded by the Hon'ble Mediator should be treated to be order and direction of this Appellate Tribunal to be complied by all the parties including the Promoters of 'M/s Jagtar Singh ....
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.... records, we are of the view that it would be conducive to interest of justice to allow the Appellant to pay 50% of the balance amount by the end of March, 2021 and remaining amount by the end of June, 2021, failing which Respondent No.1 shall be entitled to approach the Adjudicating Authority to seek revival of CIRP proceedings against the Corporate Debtor for breach of Terms of Settlement recorded by this Appellate Tribunal in terms of para 11 of the order dated 6th December, 2019 treating it to be an order and direction of this Appellate Tribunal to be complied by the parties. In the event of nonadherence to this revised schedule, in whole or in part, order passed in appeal dated 6th December, 2019 shall stand recalled in terms of para 11 and CIRP revived. CIRP costs including the fees of the Interim Resolution Professional, in such eventuality shall be addressed by the Adjudicating Authority. I.A. Nos.1071 & 2218 of 2020 stands disposed off. (Emphasis supplied) 56. We also find that the Corporate Debtor made payments on 11.09.2020 and again on 29.04.2021. These payments are admitted and have not been disputed by the Appellant. Under Section 19 of the Limitation A....
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.... sign them, especially when his guarantee continued to operate for the entire duration. 59. For these reasons, we hold that the Adjudicating Authority was correct in rejecting the limitation objection and in admitting the Section 95 application. The challenge on the ground of limitation therefore fails. ISSUE II: Whether the guarantee executed by the Appellant continued to bind him, or whether it stood extinguished or substituted because of the later settlement and undertakings given by the Corporate Debtor's promoters? 60. We now take up the issue related to validity of guarantee extended by the appellant. Ld. Counsel for the Appellant argues that his personal guarantee related only to the first loan of March 2013 and not to the second loan granted in May 2016. He claims that when the Corporate Debtor and the creditor entered into a settlement in December 2019, a new contract came into existence between them. He submits that since the terms of the debt changed in that settlement, his earlier guarantee stood discharged under Sections 62 and 133 of the Contract Act. 61. The Respondent, on the other hand, asserts that the guarantee signed by the Appellant is a continuing ....
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....10, 14 and 19 of the Guarantee Agreement, which are extracted below: "8. The Guarantee shall be a continuing till such time INTEC CAPITAL LTD may have any claim against the Borrower under the Agreement and all dues are discharged completely to the satisfaction of INTEC CAPITAL LTD. 10. Any novation/variation of the Agreement and for concessions acquiescence made by INTEC CAPITAL LTD to the Borrower with/without informing/notifying the Guarantor shall not discharge the Guarantee The Guarantor further agrees that any concession or indulgence granted to the Borrower in respect of the terms and conditions either in releasing or returning the security (ies), after taking possession of it or in any other manner, shall not prejudice INTEC CAPITAL LTD's right against him or relieve him from his/her guarantees. It shall not be necessary for INTEC CAPITAL LTD to give any notice to the Guarantor in the event any such novation, variation etc." 14. The Guarantor confirms and accepts that any default by the Borrower under the Agreement. On such termination the entire sum of money due and outstanding under the agreement shall become payable forthwith. 19. T....
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....ows that the original rights of the creditor were never surrendered. A contract cannot be said to be substituted when the old obligations spring back into force the moment the new arrangement is breached. 67. It is also important to keep in mind that the settlement was not a private arrangement between the Corporate Debtor and the creditor. It formed part of judicial orders of this Appellate Tribunal dated 06.12.2019 and 15.03.2021. When a settlement is recorded by a court or tribunal, it does not become a new and independent contract replacing the earlier one unless such intention is clearly recorded. In this case, the orders recorded the agreement of the parties and gave them an opportunity to settle the dues. At the same time, it was recorded that in case of failure to abide by the agreement, it would result in failure of the mediation agreement and thereby leading to re-initiation of CIRP. It is therefore clear that after the failure of terms of settlement under the mediation agreement, the original loan agreement and the guarantee remained in place. 68. A guarantor is not discharged merely because the principal debtor enters into a settlement or compromise with the credi....