TaxTMI 
TaxTMI 
TaxTMI 
2026 (4) TMI 229
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....t engages consideration in the instant company appeal are that, the company under the name and style of M/s. Deccan Chronicle Holdings Limited, (the Corporate Debtor herein), had been incorporated as per the provisions of the Companies Act, as back as on 1991. The said company, i.e., the Principal Borrower was ultimately found to have committed default in the remittance of its financial dues, within stipulated time, as it was agreed upon, by the Corporate Debtor and the Financial Creditor (L & T Finance Limited). 3. Consequentially, they were made to face the CIRP proceedings under Section 7 of the I & B Code. But there are certain inevitable ancillary facts, which too are necessarily required to be conjointly referred to at the stage when we are considering the appeal itself on its merit. 4. It is in relation to fact that, the aforesaid company named as Deccan Chronicle Holdings Limited, (herein after to be referred as the Corporate Debtor) was once pioneering in the field of publication of newsletters and newspapers namely financial English daily -"Financial Chronicle" and Telugu daily, weekly, and monthly publications viz., "Andhra Bhoomi" that was in circulation in two st....
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.... Act of 1996, the award dated 15.03.2013, has been confirmed by the Judgment of 05.05.2015 passed by High Court of Bombay dismissing the challenge put-forth to the Arbitral Award and consequent thereto, upon on an affirmation of the award, that was rendered under the Arbitration and Conciliation Act of 1996, the same would be executable as a decree of the Civil Court, in accordance with Section 36 of the Act of 1996, and consequentially the execution proceedings had been put to motion and the same is pending consideration before the Hon'ble Bombay High Court. At this stage of the company appeal, these proceedings of the execution of the arbitral award may not be of much relevance, which may at present would not be required to be ventured into by us, at this stage, when we are dealing with the Impugned Order dated 24.06.2022, whereby it has resulted in to, the initiation of the proceedings under Section 95 of I & B Code, 2016, to be read with Rule 7 (2) Insolvency and Bankruptcy Board of India (Application to Adjudication Authority for Insolvency Resolution Process for Personal Guarantors to the Corporate Debtors) Rules 2019, (herein after to be called as the IBBI Rules of 2019). ....
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....ondent No. 1, has himself disclosed the date of default as to be of 01.08.2012, which would be an admission default date. In that eventuality, if the date of default, which has been expressed in the notice issued under Section 95(4)(b) of the I & B Code, was not required to be made as subject of any interpretation, because an admitted date of default has been given in the notice of demand dated 20.01.2020, being that of 01.08.2012, thus its argued that, the entire proceedings will be barred by limitation. 11. It was contended by the Ld. Counsel for the Appellant that the so-called theory of 'continuing guarantee', which has been argued by the Ld. Counsel for the Respondent, it was drafted, intending to overcome the embargo of the limitation for the purpose of initiation of the proceeding under Section 95 of I & B Code, as argued by the Appellants Counsel in response to Respondents agruments. The Ld. Counsel for the Appellant has taken a stand that, in his reply dated 03.02.2020, that, for the purposes of determining the limitation, the so- called philosophy of the "continuing guarantee", as alleged by the Respondents to have been prescribed under the terms of the settlement agre....
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....gal, Professional and other out of pocket expenses: as per actuals 11. Commitment Charges : NIL 12. Put /Call option : On the date falling at the end of 12 months from the date of disbursal, the lender shall have a right to call back the loan facility (call option). On the same date penalty (Prepayment option)." 12. The arguments is that the concept of for use of terminology of "Continuing Guarantee", has been followed to be argued by the Ld. Counsel for the Respondent in the light of the provisions contained under Section 129 of Indian Contract Act, deriving its precepted perception from the conditions of the contract of the 'Deed of Guarantee', itself, contending thereof that, since it was in the shape of a continuing guarantee, in that eventually the aspect of limitation would not be determined exclusively based upon the date of default, which has been given in the notice of demand, as issued by the Respondent for initiation of the IRP proceedings. 13. On the contrary, the Ld. Counsel for the Appellant, in order to answer the aforesaid contentions that has been raised by the Ld. Counsel for the Respondent, giving the shape of the demand, as to be a 'c....
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.... of actual or admitted default, which has to be construed in the light of the provisions contained under Section 238A to be read with Article 137 of Limitation Act, and not otherwise as it has been argued by the Ld. Counsel for the Appellant, based upon the extraction of the unknown concept of continuing guarantee by attracting Section 129 of the Indian Contract Act based upon the covenants of the Facility Agreement on which he has relied upon. 15. But, more importantly, what has been argued by the Respondents Counsel is that the so-called philosophy of continuing guarantee, which has been sought to be attracted by the Ld. Counsel for the Respondent, is being vehemently opposed by the Appellant. In continuation to it, the Appellant's Counsel contends that if the said philosophy of continuing guarantee is analysed in the light of the provisions contained under Section 129 of the Indian Contract Act, 1872, which if it is taken into consideration it will lead to a catastrophic situation, deceiving the object of the Code, where despite there being multiple defaults, and for the said aspect to enable to attract a continuing guarantee, a responsibility is casted upon the Respondent to....
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....n into consideration which for the purposes of brevity is extracted hereunder. "3(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 [paid] by the debtor or the corporate debtor, as the case may be;" 19. A default under the I & B Code, 2016, would be a single event, which chances and necessitates the issuance of notices for drawing the proceedings under Section 95 of I & B Code, and it is not recurring or variable, its definite in nature. If that be the situation particularly, where even the Facility Agreement deals with only a single transaction of remittance of the amount, as it was said to have been extended by way of a financial assistance by Respondent No. 1, which is alleged to have been defaulted. For the said single transaction Facility Agreement cannot be attracted and interpreted in such a manner that, it could be given it a shape of a continuing guarantee, where an act of default is or could at all be taken as a continuous act for, which the period of limitation could have at all been made variable and be extended beyond 01.08.2012 i.e., the date of default mentioned in noti....
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....f the Indian Contract Act. The arguments of Ld. Counsel for Respondent No. 1 that, the financial facility, which was taken to be extended to the Corporate Debtor for its corporate purposes and such loan, which was extended by way of a personal guarantee to the Appellant, it was due to continuous default, and particularly, when there is nothing to show that there was any curative action that was taken by the Respondents or could have been in response taken by the Appellant to remit the amount, before the proceedings were drawn. It is not in controversy that the parties have ventured into the arbitration proceedings, but he submits that, the pendency of the arbitration proceedings or an execution proceedings thereof before the Hon'ble High Court of Bombay, for that matter, the pendency exclusively itself will not restrict the Respondent to the initiation of proceeding under Section 95 of the I & B Code, 2016. But still the issue of demand and demand notice thereafter which has been issued in Form B under Section 95(4)(b) of the I & B code, was as per the necessary implications as per the provisions of the Code, which was preferred before the Ld. Adjudicating Authority for initiation ....
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....unt of this liability to be paid by the Appellant has been settled and was coextensive. Owing to the fact that, the arbitration proceedings have proceeded ex parte against him and the matter was presently pending consideration before the execution court. As far as the said contention is concerned, since we are not barging over, the issue to the effect of the proceedings of the arbitration and the execution case, which is pending by way of an Execution Application No. 2286/2015 before the High Court of Judicature at Bombay. 25. As we are confining ourselves to the question raised by the Appellant as to whether the procedure under Section 95 of I & B Code, would be barred by limitation or not, owing to the admitted date of default as expressed by the Applicant, under Section 95 of the I & B Code, proceedings i.e., the Respondent themselves and which is a fact not denied by them also, that during the course of the pleadings or argument with regards to the date of default as given therein in the demand notice. The only question which is left over to be considered by us would in fact be the light of the judicial proceedings referred to by the counsel for the parties, as to, what woul....
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.... it mentions the date of default as to be on 01.08.2012 and since the application mentions the default as to be on various dates i.e., 01.08.2012, 19.06.2017 and 13.02.2020 as to be the dates of default that has been derived because of the refusal to pay the debt which has arisen as of the date of the demand only. As the date of default in the instant case, since it has been mentioned in the demand notice as on 01.08.2012, that in itself has to be taken as to be a yardstick for the purposes of attracting the aspect of limitation for sustaining the proceedings under Section 95 of I & B Code. 28. This Appellate Tribunal has to consider the period of limitation after taking into consideration the time duration, and the pendency of the execution proceedings, which has been spent by Respondent No. 1, in pursuing the execution proceedings between 2015 to 2021, which he intends to exclude for the purposes of determining of the limitation for filing of an application under Section 95 of I & B Code. We are not agreeable to this argument as it has no reasonable basis, and this may lead to misuse of the judicial process or to deceive its object. 29. The I & B Code do not contemplate an ....
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....ound of limitation, owing to the fact, that admittedly under the demand notice of 20.01.2020, in the default clause the date of default has been reckoned by the Respondent, as to be 01.08.2012. We, in order to facilitate our reasoning, we feel it apt to consider the provisions contained under Section 95 of the I & B Code, 2016, itself, as to when would it fall for consideration to be invoked for the purposes of initiation of the IRP as against the Personal Guarantor. 33. The basic element, which is required therein under Section 95 of the Code, is that, the Creditor by himself or jointly with other Creditors, could initiate a process before the Ld. Adjudicating Authority by filing of an application, in that regard, its always subject to the satisfaction of the conditions, that there happens to be a debt, which is co-extensive to the borrower as well as to the Personal Guarantor, i.e., the Appellants herein, who were the signatories of the same set of documents governing the terms and conditions of extension of the financial facility that were extended to the principal borrower. 34. A prior process of issuance of notice under Sub-Section (4) of Section 95 of the Code is mandat....
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....ty to pay the defaulted amount by the Guarantor, who is a signatory to the Deed of Guarantee and would be equally bound to remit the amount since being co-extensive in nature in the light of the provisions contained under Section 128 of the Contract Act. 37. Reverting back to the aspect of default, though we have already referred to in the preceding paragraphs, but by way of a repetition and in elaboration to what has been observed by this Appellant Tribunal, we feel it necessary to, refer to as what literally the word "default" has been referred to under Section 3(12) of the I & B Code, 2016, which is extracted hereunder: - "(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;" 38. In context and under facts of the instant case, whether the act of default could be a singular movement to attract issuance of a notice under Section 95(4)(b) of the I & B Code, 2016, or it would be as a sequential transaction which is multiple continuous features in the light of the provisions contained under Section 129 of the Contract ....
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.... in context of debt "whole or in part", it deals with a specific singular event of default, which has to be taken as to be a factor for the purposes of issuance of a notice and those factors are inclusive of a default of a whole amount or a partial amount. 43. When the expression in the definition of default contains the whole or any part of installment, which falls due to be paid is to be taken as to be a default. In that eventuality, once the notice is issued for any of the proceedings contemplated under the Code, and particularly herein the provisions contained under Section 95 of the Code, we are of the considered view, that since the law has used the word "when" and it has been used in context of both a singular event of default or a continuous event of default and when an action of issuance of notice is taken, it will always denote to a singular event of default and it will not be treated as to be continuous for the purposes of extending the argument to be brought within the ambit of Section 129 of the Contract Act. 44. This argument though we have already dealt in the body of the judgment and more particularly since it has been persistently harped upon by the Ld. Couns....
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....95(4)(b) of the I & B Code, 2016, has to be taken as to be 01.08.2012, couldn't have been permitted to be extended by way of an interpretation merely because the demand notice was issued on 20.01.2020. Thus, the attempt made by the Ld. Counsel for the Respondent, in the context, that may it be that the date of default has been referred to in the notice as to be 01.08.2012, but still merely issuing of a notice on 20.01.2020, will not affect the proceedings merely because, that will be treated as to be providing a continuity in the light of the provisions contained under Section 129 of the Contract Act, in an agreement, which is not acceptable by this Appellate Tribunal. Because the entire term loan which was governing the rights and liabilities of the Appellant, as well as, the Respondent, cannot be taken to be made operative out outside the ambit of the Facility Agreement itself to be read with deed of guarantee and the features contained therein the agreement, since it never prescribed for that, in an event of default its remittance would be a recurring remittance, or would be successive in nature, it will not provide a continuity to the debt, and that too, when the facility a....
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....dealt with the Dispute Resolution Forum, which was provided under the agreement, first of all it contains its invocation in an event of any dispute or differences or claim, and the claim herein has been denoted to be read in reference to the dispute and difference with the Facility Agreement or the transaction documents, as contained and referred in it. 50. Here in the instant case, admittedly, there had been an Arbitration proceeding which had already been drawn before the Arbitral Tribunal, which had resulted into rendering of an award and as of now, after exhaustion of the proceedings, under Section 34 of the Act of 1996, the same is at the stage of its execution which has to be done as a decree. If we see the pleadings, as well as the conclusion that has been arrived at, it was on the basis that, the Claimants have filed their statement of claim for the recovery of a sum of Rs. 25,02, 61,350/-, wherein the amount shown therein was shown to have fallen due to be paid, as on 15.10.2012, that means even on the basis of the Arbitration proceedings, there had been a definite determination of default at the hands of the creditor for the purposes of initiating the proceedings of Ar....
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....n 95(4)(c), which reads as under: "(c) relevant evidence of such default or non-repayment of debt." 54. A particular feature, which is important to be considered, is that, as envisaged under Section 95(4)(c) is, that as per the conditions contained under Sub-clause (c), which was required to be contained in the notice under Section 95(4)(b) of the I & B Code, 2016. Its initiation, could have been under law permissible only when the Creditor gives, and places sufficient evidence of such default or non-repayment of debt. This expression of law in itself gives the provision, to be having a definite expression for consideration of default which has had to be initially satisfied in accordance with the statement of schedule of default, available to the Creditor, which has to be read in evidence for the purposes of initiation of the proceeding under Section 95 of the Code, which has to be established at the stage when the notice is issued under Section 95(4)(b) of the Code for the purposes of initiation of the proceeding under Section 95 of the Code, and its only the evidence of default or the evidence of non-repayment of debt which is a precondition to be satisfied for issuan....
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....has to be taken into consideration, which is neither the case in the demand notice issued by the Respondent on 20.01.2020, nor even in the case before the Arbitral Tribunal or even the Ld. Tribunal where the proceeding under Section 95 of the I & B Code were being undertaken. 56. Thus, while not accepting the argument that has been extended by the Respondents with regards to the Continuing Guarantee, as it would be an absolute fallacy, to accept that argument, and particularly when, apparently from the face of the record, the proceedings are apparently barred by limitation, owing to, having reference to the date of notice, which is a precondition contemplated under the statute itself, and as per Article 137 of Limitation Act, which is extracted hereunder: - "137. Any other application for which no period Three years of limitation is provided elsewhere in this Division." 57. The provisions contained under Article 137 of Limitation Act, is once again definite in its expression as, for the purposes of construing to determine, the period of limitation, which is given therein to be three years, the provision uses the word "when a right to apply accrues" hereto, it's a....
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....tice triggers further actions which are adopted towards the initiation of the insolvency resolution process." 59. In fact, if the determination that has been made by the Hon'ble Apex Court in the said judgment, is taken into consideration in its entirety, it has laid down that, in a proceedings those are held under the CIRP, under Section 9 of the Code, any attempt, which is made by the Creditor to set back the date of default is not acceptable under the eyes of law, as the default in itself happens to be in specific determination to the provisions of the law, and the disclosure of which are otherwise held to be mandatory, which are required to be mandatorily disclosed in the demand notice, which actually triggers the further action for carrying out the CIRP process. 60. We are also of the considered view that, in the light of what we have discussed above in context of the implication of Section 94 and 95, where we have already observed that, the establishment of factum of default is definite in nature and that too in the light of the circumstances of the instant case if it is to be read in context of the material on record and admitted in the arbitration proceedings, which h....
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....ditor, would give rise to a fresh cause of action to the financial creditor to initiate proceedings under Section 7 IBC within three years from the date of the final judgment and decree, and/or within three years from the date of issuance of the certificate of recovery." "67. The scheme of the IBC is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the corporate insolvency resolution process begins. Where any corporate debtor commits default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner as provided in Chapter II IBC." "141. Moreover, a judgment and/or decree for money in favour of the financial creditor, passed by the DRT, or any other tribunal or court, or the issuance of a certificate of recovery in favour of the financial creditor, would give rise to a fresh cause of action for the financial creditor, to initiate proceedings under Section 7 IBC for initiation of the corporate insolvency resolution process, within three years from the date of the judgment and/or decree or within thr....
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.... made as a subject matter of debate, but still we feel it necessary to just consider the same as to what would be the implication, because the provisions of limitation as contained under Section 238A of the Code. The said provisions contained under the I & B Code, which attracted the application of the Limitation Act is contained under Section 238A of the Code. The said provisions was shown to have been inserted upon by the Insolvency and Bankruptcy Code (Second Amendment) Act 2018, with effect from 06.06.2018. 67. There was an argument raised, as to, whether at all this aspect of limitation could at all be applied in the instant case when the law itself was introduced at a later stage, with effect from 06.06.2018, i.e., subsequent to the date of default as in the instant petition, particularly when, according to the defaults as dealt with above, is shown to have been fallen due much prior to, the insertion of the limitation provision under the I & B Code. But the said argument need not to be elaborately addressed upon for the reason being that this aspect of applicability of the limitation over defaults prior to amendment, has already been settled by the Hon'ble Apex Court in t....
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....the forum was changed. And for the purpose of the changed forum, time could not be deemed to have started running before a remedy of going to the new forum is made available. (2) Even though by and large the law of limitation has been held to be a procedural law, there are exceptions to this principle. Generally the law of limitation which is in vogue on the date of the commencement of the action governs it. But there are certain exceptions to this principle. The new law of limitation providing a longer period cannot revive a dead remedy. Nor can it suddenly extinguish vested right of action by providing for a shorter period of limitation.' (emphasis in original) 56. This statement of the law was referred to with approval in Vinod Gurudas Raikar v. National Insurance Co. Ltd. [Vinod Gurudas Raikar v. National Insurance Co. Ltd., (1991) 4 SCC 333] as follows: (SCC p. 337, para 7) '7. It is true that the appellant earlier could file an application even more than six months after the expiry of the period of limitation, but can this be treated to be a right which the appellant had acquired. The answer is in the negative. The claim to compensation which the....
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....iod is shorter than the period prescribed by the Indian Limitation Act, 1908.-Notwithstanding anything contained in this Act,- (a) any suit for which the period of limitation is shorter than the period of limitation prescribed by the Indian Limitation Act, 1908, may be instituted within a period of seven years next after the commencement of this Act or within the period prescribed for such suit by the Indian Limitation Act, 1908, whichever period expires earlier:' 58. The reason for the said principle is not far to seek. Though periods of limitation, being procedural law, are to be applied retrospectively, yet if a shorter period of limitation is provided by a later amendment to a statute, such period would render the vested right of action contained in the statute nugatory as such right of action would now become time-barred under the amended provision. 59. This aspect of the matter is brought out rather well in Thirumalai Chemicals Ltd. v. Union of India [Thirumalai Chemicals Ltd. v. Union of India, (2011) 6 SCC 739 : (2011) 3 SCC (Civ) 458] as follows: (SCC pp. 748-49, paras 22-26) '22. Law is well settled that the manner in which the appeal h....
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....ly discussed the scope and ambit of an amending legislation and its retrospectivity and held that every litigant has a vested right in substantive law but no such right exists in procedural law. This Court has held that the law relating to forum and limitation is procedural in nature whereas law relating to right of appeal even though remedial is substantive in nature. 26. Therefore, unless the language used plainly manifests in express terms or by necessary implication a contrary intention a statute divesting vested rights is to be construed as prospective, a statute merely procedural is to be construed as retrospective and a statute which while procedural in its character, affects vested rights adversely is to be construed as prospective.' 60. This judgment was strongly relied upon by Shri A.K. Sanghi for the proposition that the law in force on the date of the institution of an appeal, irrespective of the date of accrual of the cause of action for filing an appeal, will govern the period of limitation. Ordinarily, this may well be the case. As has been noticed above, periods of limitation being procedural in nature would apply retrospectively. On the facts in t....
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....s of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application." 68. Owing to the above reasons, which we observed and after elaborately considering the arguments extended by the Ld. Counsel for the parties, we can summarise the controversy from the following perspective. i. That in accordance with the provisions of law, the aspect of default, is a precondition in accordance with Section 95 of the Code for the purposes of initiation of proceedings under Section 95, and that aspect has to be definite in its term, showing existence of debt on a particular date of default, so as to conclusively deal with the aspect of limitation, which plays an important role over the proceedings. ii. In accordance with the documents, which have been brought on record, and also as per the previous proceedings too, the Appellants case itself has been that, there had been a specific cut-off of default, which had been taken as to be the basis for initiation of the Arbitration proceedings as well as that of the proceedings under Section 95 of the Code, which after its determination in a judicial proceedings would be treated to be an aspec....