TaxTMI 
TaxTMI 
2026 (2) TMI 741
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....itiated. 2. Brief facts necessary for disposal of the instant appeal appears to be that Swati International which is a partnership firm and the predecessor of Swati Pvt. Ltd. (CD) was given credit facilities to the tune of Rs. 1.75 Crores by the UCO Bank and Shri Ashok Kumar Kejriwal (Father of the Appellant- Amit Kumar Kejriwal) Amit Kumar Kejriwal (Appellant) and Sarwan Kumar Kejriwal executed banking documents to secure the credit facilities and also later on executed personal guarantees to secure the aforesaid loan on 01.10.2004. 3. On 30.06.2019 the account of the CD was declared as non-performing asset (NPA) by the bank and on an application moved in this regard being CP IB No. 1161/KB/2018 the CIRP process was initiated against the CD vide order dated 08.07.2019, passed therein for a default amount of Rs. 6,89,98,729.90/-. 4. An application under Section 95 of the Code was moved by the Respondent No. 1 for initiation of personal insolvency against the guarantor i.e. Amit Kumar Kejriwal and which was allowed by passing the impugned order which is the subject matter of challenge before us. 5. Ld. Counsel for the appellant submits that on an application moved by the....
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....Anr., CA (AT) (Ins) No. 329 of 2023 and has arrived at a wrong conclusion by misinterpreting the law. 12. It is also submitted that Ld. Adjudicating Authority has failed to understand that the report submitted by the RP is only recommendations and is not conclusive and binding and therefore there was grave illegality committed by Ld. Adjudicating Authority in admitting the petition without there being any invocation of guarantee and therefore the same is liable to be set aside. Ld. Counsel for the appellant has relied on the law laid down by this appellate tribunal in Pooja Ramesh Singh vs. State Bank of India and Anr., CA (AT) (Ins) No. 329 of 2023 dated 28.04.2023 and CA (AT) (Ins) No. 191 of 2025, State Bank of India vs. Deepak Kumar Singhania 28.02.2025. 13. Ld. Counsel for the Respondent No. 1-UCO Bank submits that the present appeal is not maintainable and is liable to be dismissed and there is no illegality in the impugned judgment passed by the Ld. Adjudicating Authority. 14. It is further submitted that the statutory notice in Form B was issued to the appellant by the Respondent No. 1 prior to filing of the petition and upon the non-payment of the amount pertainin....
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....bmitted that a conjoint reading of Section 95(4) of the Code, with Rule 3(e) and Rule 7 (Personal Guarantor Rules, 2019) would lead to an irresistible conclusion that failure of the guarantor to pay the debt within 14 days of receipt of notice under Form B will trigger an application under Section 95 of the Code, therefore it would be immaterial if any previous demand notice invoking personal guarantee has been given or not. 21. It is also submitted that the basic principle of the interpretation of statute is that if a statue prescribes a particular mode and manner of performance of any action, such action has to be taken accordingly and not otherwise. Reliance in this regard has been placed on King Emperor vs. Khawaja Nazir Ahmed, 1944 SCC Online PC 29. 22. It is further submitted that since all the legal provisions have been followed by the Respondent in moving the application as provided in the Code as well as in Rule 7 (Personal Guarantor Rules, 2019) the appeal is liable to be dismissed. Ld. Counsel for the Respondent has also relied on the law laid down by the Hon'ble Supreme Court in Dilip B. Jiwrajka vs. Union of India and Ors., (2024) 5 SCC 435 as well as on Kerala S....
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....emnity, security or remedy which the Bank may hold or be entitled to in respect of the sum due to the Bank by such Customers". "Notwithstanding anything herein before contained my/our liability under these presents shall extend to all accounts of the Customers whether the same are the account or accounts of such customers solely or are accounts on which such Customers may become liable jointly in any manner whatsoever with any company or firm, person or persons and in whatever name the same may stand and shall not be affected by any change in the constitution or name of the Customers' firm or company or any change in the constitution of the Bank, its successors or assigns or by its absorption in or by Its amalgamation with any other Bank or Banks". "I/We agree that a statement of account signed by an Officer of the Bank showing amount due by the Customers as appearing in the books of account of the Bank will be sufficient proof of the liability of the Customers and the same, will be binding on me/us and I/we promise and agree to pay on demand being made upon me/us by the Bank the amount due at the foot of the said statement of account with interest mentioned a....
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.... impugned judgment is also reproduced as under: "11.1 We find that the Applicant Bank has issued Form B notice on 24.09.2020 pursuant to Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rule, 2019). 11.2 Learned Counsel appearing for the petitioner Bank rightly submits that if after issuance of section Form B notice, the debt is not paid then the Section 95 petition will be maintainable against the Personal Guarantor. 11.3 Further, the order passed by the Coordinate Bench at Mumbai in C.P. (IB) No. 161/MB/2021 dated 08.12.2021 simply says that: "3. The Petitioner is to place on record the following information on the next date of hearing: (a) Consent of IRP. (b) Invocation of Personal Guarantee. (c) Issuance of form-B/ proof of delivery of Form-B. (d) Proof of delivery of Petition on the Personal Guarantor." Evidently, the Mumbai Bench has asked for details of invocation of personal guarantee, issuance and delivery of Form B but has not laid down any law about separate invocation preceding s....
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.... sufficient compliance of Section 95 of the Code. 30. It is to be recalled that part I of the Code is placed under the heading preliminary which contains definition clause and under Section 3, sub- section (11) of it the "debt" has been defined as under: - (11) "debt" means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt; 31. It is also fruitful to mention here the manner in which the "default" has been defined under the Code under Section 3(12) of the Code which is also reproduced as under: - (12) "default" means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not 1[Paid] by the debtor or the corporate debtor, as the case may be; 32. In part II of the Code which is dedicated to insolvency resolution and liquidation for corporate persons in Section 5(22) "personal guarantor" has been defined as under: - (22) "personal guarantor" means an individual who is the surety in a contract of guarantee to a corporate debtor; 33. Since, the application has been filed by the Respondent No. 1/ Financial Creditor u....
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.... 35. It is also to be recalled that Rule 3(1)(e) of 2019 Rules defined 'Guarantor' which is as under: - "guarantor" means a debtor who is a personal guarantor to a corporate debtor and in respect of whom guarantee has been invoked by the creditor and remains unpaid in full or part; 36. It is therefore evident that the guarantor within the meaning of 2019 Rules suggest a debtor who is a personal guarantor to a CD and in respect of whom guarantee has been invoked by the creditor and the same has remained unpaid either in full or in part. 37. It is also to be recalled further that Rule 7 of 2019 Rules provides as under: - 7. Application by creditor. ― (1) A demand notice under clause (b) of sub-section (4) of section 95 shall be served on the guarantor demanding payment of the amount of default, in Form B. (2) The application under sub-section (1) of section 95 shall be submitted in Form C, along with a fee of two thousand rupees. (3) The creditor shall serve forthwith a copy of the application referred to in sub-rule (2) to the guarantor and the corporate debtor for whom the guarantor is a personal guarantor. (4) In case of a joint ap....
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....t only against the Principal Borrower but also against the Corporate Guarantor, which is the scheme of the I&B Code. When we read with as is delineated by Section 3(11) of the Code, debt becomes due both on Principal Borrower and the Guarantor, as noted above. The definition of default under Section 3(12) in addition to expression 'due' occurring in Section 3(11) uses two additional expressions i.e "payable" and "is not paid by the debtor or corporate debtor". The expression 'is not paid by the debtor' has to be given some meaning. As laid down by the Hon'ble Supreme Court in "Syndicate Bank vs. Channaveerappa Beleri & Ors." (supra), a guarantor's liability depends on terms of his contract. There can be default by the Principal Borrower and the Guarantor on the same date or date of default for both may be different depending on the terms of contract of guarantee. It is well settled that the loan agreement with the Principal Borrower and the Bank as well as Deed of Guarantee between the Bank and the Guarantor are two different transactions and the Guarantor's liability has to be read from the Deed of Guarantee. 26. The judgment of the Hon'ble Supreme Court in "Syndicate Ban....
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....eed and the default shall arise on the part of the Guarantor only when demand notice is issued as contemplated in the Deed of Guarantee. When the State Bank of India invoked the guarantee vide notice dated 01.10.2020, demand on the part of the Corporate Guarantee shall arise only subsequent to the notice dated 01.10.2020 i.e. non-payment of the amount within seven days i.e. default arise on 08.10.2020. 33. In view of the foregoing discussion and conclusions, we answer Issues No. II, III and IV in following manner: Issue No. II: The Deed of Guarantee dated 17.05.2019 is guarantee on demand and the limitation of Guarantor shall ensue only when demand is made to the Guarantor. Issue No. III: The Notice dated 01.10.2020 issued by the State Bank of India to Guarantor has to be treated to be notice on demand as contemplated in the guarantee and the default on the part of the Guarantor shall be only after notice dated 01.10.2020 i.e. during period of Section 10A. Issue No. IV: The application filed by the Bank under Section 7 was barred by Section 10A. 41. A conjoint reading of Section 95(4) and Rule 7 of 2019 Rules would indicate the complete mechan....
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....n support of the above submission, i.e. AIR 1968 SC 1450 - Ishwar Singh Bindra and Ors. vs. State of U.P. The Hon'ble Supreme Court in the above case had occasion to consider the definition of 'drug' contained in Section 3(b)(i) of Drugs Act 1940. Expression 'and' used in Section 3(b)(1) of the Drugs Act was considered in the said case and in paragraph 11 of the judgment, following was laid down: "11. Now if the expression "substances" is to be taken to mean something other than "medicine" as has been held in our previous decision it becomes difficult to understand how the word "and" as used in the definition of drug in Section 3(b)(i) between "medicines" and "substances" could have been intended to have been used conjunctively. It would be much more appropriate in the context to read it disconjunctively. In Stroud's Judicial Dictionary, 3rd Edn. it is stated at p. 135 that "and" has generally a cumulative sense, requiring the fulfilment of all the conditions that it joins together, and herein it is the antithesis of or. Sometimes, however, even in such a connection, it is, by force of a contexts, read as "or". Similarly, in Maxwell on Interpretation of Statutes, 11th ....
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....fault before issuance of Notice under Rule 7(1), must exist on the part of the Guarantor. Hence, we reject the submission of the Appellant that Notice under Rule 7, sub-rule (1) is a Notice, invoking the guarantee. We, thus, do not find any error in the order of the Adjudicating Authority, rejecting Section 95 Application filed by the SBI. There is no merit in the Appeal. The Appeal is dismissed. There shall be no order as to costs." 44. The aforesaid law propounded by a Bench of this Appellate Tribunal comprising three Hon'ble Members has clearly laid down the law that it would be mandatory on the part of the Financial creditor to invoke the guarantee before issuing a notice under Rule 7(1) in Form B of 2019 Rules and also that default before issuance of such notice must exist on the part of the guarantor and has therefore rejected the submissions as canvassed by Ld. Counsel for the Appellant by holding that the notice given under Rule 7(1) of 2019 Rules is not a notice for the purpose of invoking the guarantee. 45. Having regard to the facts of the instant case it is an admitted position that no notice for the purpose of invocation of guarantee prior to issuance of notice u....