TaxTMI 
TaxTMI 
TaxTMI 
2026 (2) TMI 436
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....The defence to the initiation of CIRP was founded on the validity, subsistence, invocation, and enforceability of the corporate guarantee itself are in serious dispute. THE FACTS 3. The essential facts necessary for appreciating the merit of this appeal are stated as below: a) The CD is, inter alia, engaged in the business of real estate investment and management. Be that as it may, on 16.11.2012, a consortium of banks led by the first respondent sanctioned a working capital loan of Rs. 20.0 crores to M/s Eastern Gases Ltd., the principal borrower. The sanctioned facilities comprised of fund-based and non-fund-based limits and were extended under a consortium arrangement. As part of the security structure for the said facilities, the consortium inter alia required corporate guarantees and the CD herein offered to be a corporate guarantor. Accordingly, on 05.02.2013 the CD executed necessary deed of guarantee in favour of the consortium banks, which, needless to state included the first respondent herein. Besides, the CD had also offered its nine residential apartments as security for the said loan and created an equitable mortgage over them. b) While so, on ....
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....D would contend: a) On 30.06.2016, the first respondent which is the lead bank of the consortium, issued a communication relinquishing its security interest over the 9 flats and there was substitution of security by way of lien on fixed deposit of Rs. 2.0 crores. These facts were not informed to the CD then, but the CD came to know of it only when the respondent issued a letter dated 16.04.2022, demanding the repayment of loan. It had come to light that the respondent had advanced loan not as part of the consortium but independently to the principal borrower. The CD however, had initially offered guarantee for the loan advanced by the consortium and not by the respondent. This apart there was large scale misapplication of loan amount by the principal borrower with the help of the respondent. In these circumstances, the CD instituted C.S.2156 of 2022 inter alia for the cancellation of the deed of guarantee and release of the nine apartments which were originally offered as collateral security. Hence the petition itself is not sustainable. b) The petition is barred by limitation. The reasons are: • The loan was sanctioned to the principal borrower on 15....
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.... Asset Reconstruction Company (India) Ltd., Vs Bishal Jaiswal & another [Civil Appeal No. 323 of 2021], Mahabir Cold Storage Vs CIT, [1991 Supp (1) SCC 402]. c) So far as pendency of a civil suit which the CD has instituted against the bank, the same has zero effect when it faces a petition under Sec.7 IBC. Reliance was placed on the ratio in Kotak Mahindra Bank Ltd., Vs Kew Precision Parts (P) Ltd., [(2022) 9 SCC 364] and when once the debt and default are established, the Adjudicating Authority is bound to admit the application. It may however, be stated that while the pivot of the CD's defence was rooted in the letter of the respondent dated 30.06.2016, the Order does not show any discussion on the implication of this document. The Arguments: 7. The learned counsel for the appellant submitted: a) There is no concluded crystallised financial debt as is required to be understood within the scheme of Sec.7 IBC or default in paying the same. The Order under challenge is guided by a misconception as to the existence of debt and default as it converted a contingent contractual arrangement into a ground for the civil death of a solvent company, since a ....
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.....06.2016, where under, it, as the lead bank of the consortium, relinquished the mortgage security of nine residential flats and the corporate guarantee provided by the Corporate Debtor. Therefore, the appellant's obligation under the deed of guarantee stands discharged. This communication was suppressed by the first respondent. f) On the issue of limitation, even according to the bank, the principal debtor's default in repaying the loan had it was classified as a NPA on 02.05.2017. Therefore, if at all the guarantee is presumed to be alive on that date, then it ought to have been invoked within three years from 02.05.2017, but the petition under Sec.7 IBC was filed only in March 2024. In this record, the alleged acknowledgement of debt in the balance sheets of the appellant may not be useful as the balance sheets themselves show that the debt in question was only a contingent liability. g) The CIRP is wrongly invoked for recovering dues for in excess of the admitted liability of the principal borrower which goes against the tenets of the IBC. h) The validity, enforceability, and subsistence of the corporate guarantee are directly in issue and are already ....
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....ntinuing guarantee, and hence the Appellant's assertion that the guarantee was limited to a period of one year is factually incorrect and contractually unsustainable. This apart even the plaint in C.S.No: 2156 of 2022 does not allege that the guarantee had expired by efflux of time. d) So far as the deed of corporate guarantee dated 21.01.2016, the appellant's contention that the said guarantee was never finalised is entirely baseless and an afterthought, and has been taken for the first time before the appellate tribunal. The guarantee bears the signature and stamp of the CD and was executed pursuant to a revised working capital arrangement. Reliance is placed on the ratio in Rama Kt. Barman (Died) through LRs) Vs Md. Mahim Ali & Others., [2024 INSC 644] and Mathai Vs Varkey & Others [Civil Appeal No. 372 of 1960]. e) Turning to the alleged sanction letter dated 30.06.2016 which the appellant relies on to build a defence that the guarantee and the security interest created over certain immovable assets of the CD have been relinquished is concerned, it never fructified into a binding agreement. It is contended that the sanction letter is merely an offer, with a st....
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....l of limitation against both. i) So far as the contention that the claim against the guarantor exceeds the admitted claim of the principal borrower is concerned, under the terms of the guarantee and the law on the aspect, the guarantor is liable not only for the principal sum but also for the interest and other contractual dues. Besides, this issue is not determinative at the stage of admission under Sec. 7 and that the Adjudicating Authority is only required to be satisfied as to the existence of debt and default. j) On the issue of pendency of C.S.2156 of 2022 is concerned, it does not bar the initiation of an insolvency proceedings since a CIRP is not a recovery proceeding but only aims at resolution of corporate insolvency. Discussion & Decision 9. The appellant's strategy is straight forward: It has apparently executed two deeds of guarantee. So far as the first one, dated 05.12.2013, is concerned, it says that in view of the 3rd recital in the second deed of guarantee dated 21.01.2016, it was discharged of its obligation under the first deed of guarantee. But so far as the second deed of guarantee goes, it is unenforceable as it has couple of blank spa....
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....ment with open eyes, for sustaining its argument on this aspect, it should have established how leaving a blank space in the document constituted a material omission and that it has created irresolvable ambiguity in understanding the terms of the contract as to render it unenforceable. In other words, it should have established a prima facie case that there involved an issue inviting construction of the second guarantee deed. That was not even attempted. This contention, with all its ingenuity or desperation does not help the appellant's cause. 10.3 Is the guarantee deed dated 05.02.2013 limited by time, limited to one year from the date of its execution? Under this document, the CD became obligated to pay the debt for a sum not exceeding Rs. 43.0 crores, which the first respondent as the lead bank of the consortium had agreed to advance the principal borrower. A careful reading of the deed of guarantee discloses that under Clause 8 thereof, the guarantee is described as a continuing guarantee. Contrary to the contention of the appellant, nowhere it could be found that the guarantee in question is limited by time. On the other hand, it indicates that its liability under the deed....
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.... as well. 12 Turning to the issue on pendency of C.S.2156 of 2022 is concerned, pendency of the suit by itself may not be a ground to reject a petition under Sec.7, though it may be relevant for the one instituted under Sec.9 IBC. The pendency of the suit may become relevant if only the foundation for the same rests in any allegation of fraud played by the lender, but then facts constituting such allegation of fraud have to be independently pleaded and established in a proceeding under Sec.7 IBC. The appellant fails again. 13.1 This brings into focus the last aspect: the bar of limitation. According to the appellant, 02.05.2017, the loan to the principal borrower was classified as NPA but the petition under Sec.7 was laid only in March, 2024, which very obviously was beyond three years. The respondent explains that in the balance sheet of the guarantor-CD for 2019-2020, 2021-2022, and 2022-2023, it has acknowledged its liability arising out of its contract of guarantee and hence its petition under Sec.7 is within time. But the appellant would contend that in its balance-sheet the liability to the respondent is disclosed only as 'contingent liability' and that it would not amo....