TaxTMI 
TaxTMI 
2026 (7) TMI 533
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....admitted the application filed by Respondent No.1 bank seeking personal insolvency resolution process against the Appellant Nakul Gupta on the report filed by Respondent No.2 RP under Section 99 of IBC, 2016. Submissions of the Appellant 2. Respondent No.1- SBI has been granting various loan/credit facilities to the Corporate Debtor from 17.04.2009. On 11.10.2017 as part of Bank of India (hereinafter referred to as "BoI" i.e. the lead bank) consortium, credit facilities for a total amount of Rs. 907/- Crore was sanctioned in favour of Corporate Debtor by the BOI consortium with BOI being the lead bank. 3. The Respondent No.1 bank joined the BOI consortium and renewed its credit facility for an amount of Rs. 17/- Crore out of the total consortium amount of Rs. 907/- Crore in favour of the Corporate Debtor. These 'facilities' are working capital facilities and do not operate like 'term loans'. 4. The facility availed by Corporate Debtor from Respondent No.1 bank as part of BOI Consortium from 2017 was a renewal of the credit facilities which were being availed by the Corporate Debtor. 5. In consideration to the credit facilities granted to the Corporate Debtor by BOI c....
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....ng credit facilities to the tune of Rs. 117/- Crore from Respondent No.1 under the new contract which was the sanction letter dated 01.01.2019 with varied terms and conditions and not in terms of the working capital consortium agreement dated 17.10.2017. It is a matter of record that till 14.12.2018 there was no default on the part of the Corporate Debtor and the same is also evident from the Information Utility documents filed by the Respondent No.1 bank. Subsequently, Corporate Debtor allegedly defaulted in its repayment and the account turned NPA on 27.06.2019. 10. Despite the Appellant not being party to the credit facilities availed by Corporate Debtor after 14.12.2018, to which it was in default, Respondent No.1 initiated proceedings under IBC against the Appellant as well and filed application under Section 95, IBC, 2016. 11. Since with effect from 14.12.2018, credit facilities to the tune of Rs. 117/-Crore granted by Respondent No.1 bank to the Corporate Debtor was under the new renewal sanction dated 01.01.2019, Respondent No.1 bank never disclosed the fact of renewal dated 01.01.2019 in its application filed under Section 95 IBC, 2016. Further, the RP in its report ....
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....upon. The oral submissions by the Respondent No. 1 bank that the letter dated 01.01.2019 was not acted upon is contrary to their own pleadings before this Hon'ble Tribunal. Further, it is submitted that Respondent No.2 RP had also admitted in his reply that the credit facilities were renewed by Respondent No.1 by way of sanction dated 01.01.2019. 13. Even in the Impugned Judgment of the Ld. Adjudicating Authority dated 27.02.2024 categorically renders a finding to the effect that a renewal has been given effect to after 2018 and the Corporate Debtor was in default of the credit facilities granted under the renewed sanction there has been a renewal of sanction letters by the Respondent No. 1 bank. Thus, a specific finding has been returned by the Ld. NCLT that the corporate debtor was in default for the facilities availed by it under the renewed sanction, and the Appellant Nakul Gupta had neither consented for it, nor gave any personal guarantee. This finding of the Ld. Adjudicating Authority in this regard, has not been challenged by the Respondent No. 1 bank. Thus, the letter dated 01.01.2019 was an ACCEPTANCE of an OFFER made by the Corporate Debtor- resulting in a concluded c....
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....nt, and hence Appellant cannot be held liable for any dues arising thereunder. The Ld. Adjudicating Authority in the Impugned Judgment dated 27.02.2024 records that the Appellant would only be liable in case of any 'Default' in the repayment of the credit facilities prior to the RENEWED Sanction Letter dated 01.01.2019. However, there is no finding or any sort of adjudication on the DATE OF DEFAULT by the Corporate Debtor so as to fasten the liability on the Appellant. As per the Respondent No. 1 bank itself, there was no 'DEFAULT' of payment until 27.06.2019 and there was no overdue 'DEBT' until 22.05.2019. Despite holding that there has been a variance and renewal in the credit facilities after 2018, the Impugned Judgment is completely silent on what the 'DATE OF DEFAULT' is in the present case. For this reason alone, the Impugned Judgment is bad in law and warrants to be set aside. It is pertinent to note that the Appellant had resigned and had completely disassociated from the Corporate Debtor by 08.03.2018. Thereafter, the lead bank of the Consortium had issued letter dated 24.10.2018 which recorded enhancement of total credit facilities from Rs. 907/- Crores to Rs. 1075/- Cro....
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.... basis of the working capital consortium agreement dated 17.10.2017 qua Respondent No 1 was valid only from 05.10.2017 for a period of 12 months. Subsequently the credit facilities were renewed by Respondent No.1 bank for an amount of Rs. 117/- Crore for a further period of one year by way of its fresh contract/sanction dated 01.01.2019 with effect from 14.12.2018. Thus, for the credit facilities availed by Corporate Debtor, as rightly held by the Ld. Adjudicating Authority, after 2018 under the renewed sanction, to which Appellant had neither consented, nor given his guarantee, he cannot be held liable. As stated above, it is a matter of record that there was no default under the credit facilities provided in terms of sanction dated 11.10.2017. 16. Secondly, there is a material variance in the terms of the Sanction Letter dated 11.10.2017 issued by the Respondent No. 1 bank as compared to the subsequent Sanction Letter dated 01.01.2019 issued by the Respondent No. 1 bank. The Terms of the Letter dated 01.01.2019 are materially different from the original sanction letter dated 11.10.2017 issued by the Respondent No. 1 bank. Due to the fact that there were material variances in t....
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....ed to sanction letters/renewals issued subsequent on its expiry. In the present case, it is apparent that there has been an enhancement of sums from Rs. 907/- Crores to Rs. 1075/- Crores on the basis of fresh sanction letter issued by the lead bank of the Consortium on 24.10.2018 which recorded enhancement of total credit facilities from Rs. 907/- Crores to Rs. 1075/- Crores, which was duly accepted by the Corporate Debtor on 22.11.2018 and the letter dated 01.01.2019 issued by the Respondent No. 1 bank. In addition to 'enhancement', there has also been a 'RENEWAL' of credit facilities on completely new and varied terms by the letter dated 01.01.2019 issued by the Respondent No. 1 bank- which is undisputedly not covered by the Deed of Guarantee dated 17.10.2017. Therefore, the 'Continuing Guarantee' clause is completely inapplicable to the present facts and circumstances. On the one hand, the Impugned Judgment holds that the limits of the Credit Facilities were 'enhanced', while on the other hand, the Ld. Adjudicating Authority also states that the term in the Deed of Guarantee qua 'Continuing Guarantee' would apply. It is submitted that these findings are completely contradic....
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....ult occurred under the renewed sanction, and (ii) the Appellant is liable under the original sanction-two conclusions that cannot coexist. The contradiction becomes starker when the statutory framework is applied. Section 133 of the Indian Contract Act mandates that any variance in the terms of the contract between the principal debtor and the creditor, made without the surety's consent, discharges the surety as to all transactions subsequent to the variance. The Adjudicating Authority itself records that there was a variance-indeed, a complete renewal-of the credit facilities after 2018, and that the Appellant did not sign or consent to the renewed terms. Once this finding is recorded, the legal consequence under Section 133 is automatic. The Appellant stands discharged for all transactions subsequent to the variance. The impugned order, however, contradicts this statutory mandate by simultaneously acknowledging the variance and yet refusing to give effect to the discharge. The contradiction is further compounded by the fact that the Adjudicating Authority does not render any finding whatsoever on the date of default, despite the Respondent Bank's own pleadings that the account wa....
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....ning to issuance of fresh sanction letters after the resignation of the Appellant from the Corporate Debtor. On 09.01.2024, the Ld. Adjudicating Authority in the present proceedings directed the RP of the Corporate Debtor to provide the documents requested by the Appellant. Thereafter on 16.01.2024, the Appellant sought time to place the documents, particularly letters dated 24.10.2018 issued by lead Bank of the Consortium of banks and letter dated 01.01.2019 issued by the Respondent No. 1 bank on record which was denied by the Ld. Adjudicating Authority by directing that written submissions may be filed by the Appellant. There has been no oral hearing by the Ld. Adjudicating Authority on these documents which form crux of the case of the Appellant herein. The application (IA 3895/2023) in the CIRP proceedings of the Corporate Debtor filed by the Appellant came to be disposed of on 26.02.2024 and the very next day, the Impugned Judgment came to be passed i.e. on 27.02.2024. It is submitted that adjudication on the documents, particularly letters dated 24.10.2018 issued by lead Bank of the Consortium of banks and lett....
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....e deemed to the principal debtor (Clause 7). • Guarantee is continuing in nature and is irrevocable. Guarantee is enforceable against the Guarantor irrespective of dispute between the Bank & borrower (Clause Nos. 8 & 11). • Guarantee shall not be affected by any variation of terms of contract in future (Clause 3 & 14). • Guarantee expressly waived his right to claim discharge under any provision of Contract Act on any ground (Clause 18). • All admissions & acknowledgments of debt/balance confirmations, part payments etc. by the principal debtor shall be binding on the Guarantor (Clause 12 & 19). 23. Under Section 129 of the Indian Contract Act, 1872 a continuing guarantee is defined as a guarantee which, extends to a series of transactions and the same can be revoked under Section 130 of the Act only qua the future transactions and that is by way of notice to the creditor. 24. However, in the present case, no notice of revocation was ever issued by the Appellant to the Creditor i.e. Respondent/SBI and the request for release to UBI/BOI was accepted by the lenders. Therefore, in view of the aforesaid clauses of the Deed of Gu....
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....Bank of India & Anr. [Company Appeal (AT) (Insolvency) No. 1228 of 2024 dated 26.02.2026]. 29. In the aforesaid facts and circumstances there being no dispute to the grant of loan facility and execution of loan and security documents including the guarantee deeds and the defaults by the Corporate Debtor and the failure of repayment also being not in dispute, the present appeal is liable to be dismissed. Appraisal 30. We have heard the counsels of both sides and also perused the material placed on record. 31. The Appellant, along with his brother, Mr. Arjun Gupta, and father Mr. Avinash Chander Gupta, were the Directors of Technofab Engineering Limited (TEL). TEL was engaged in the business of providing engineering, procurement, and construction services. TEL availed of credit facilities from banks and financial institutions, which used to be renewed and extended from time to time. On 17th October 2017, TEL was offered and accepted a total credit limit of Rs. 907/- crores, comprising Rs. 117/- crores of fund-based facilities and Rs. 792/- crores of non-fund-based facilities by a consortium of six banks, including Respondent No. 1, that is, State Bank of India. Respondent....
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....n Gupta had accepted the renewal of his personal guarantee towards credit facilities for TEL by 26 June 2020. However, the Appellant had refused to renew it and addressed a separate communication to Bank of India regarding release of his personal guarantee. 34. On 13 May 2022, Respondent No.1, that is, State Bank of India, sent a demand notice to the Appellant invoking the deed of guarantee dated 17 October 2017 on the basis of an acknowledgement by Arjun Gupta dated 19 June 2020. On 30 May 2022, the Appellant replied to R1's demand notice dated 13 May 2022, denying any demand or invocation of personal guarantee. On 18 November 2022, Corporate Insolvency Resolution Process proceedings commenced against TEL, the Corporate Debtor, which was initiated by the R1- Bank as per the orders of the NCLT, New Delhi, in CP(IB) No. 681 of 2022. On 26.12.2022, the RP in the present proceedings submitted his recommendations under Section 99 of the Code and vide IA No. 593/ND/2023, recommended the initiation of personal insolvency proceedings against the Appellant. In these proceedings, the Appellant filed a reply to the report of the RP dated 26.12.2023 denying the contents of the report o....
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....ng Authority. It is the claim of the Appellant that the Adjudicating Authority has incorrectly held that if there is any increase in the sanction limit without the consent of the guarantor, then also he shall still be liable for the debt which existed prior to its variance. The Appellant also claims that when a fresh sanction letter dated 24.10.2018 was issued, whereby the overall limits were enhanced by almost Rs. 168/- crores, it would be a novation of contract as per Section 62 of the Indian Contract Act, 1872. The Appellant claims that there had been an offer and acceptance of a new credit facility limit, which clearly amounts to a novation of contract in which the Appellant was not privy. Moreover, after the resignation of the Appellant from TEL - the CD as a Director, the Appellant cannot be held liable for the personal guarantee, as there has been a novation of the contract. Appellant claims that due to the fact that the Appellant had ceased to be associated with TEL-CD in any capacity from 08.03.2018, which was duly informed to the consortium of banks by the Appellant and TEL. Furthermore, the consortium of banks enhanced the overall credit facility limit from Rs. 907/-cror....
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....fessional. In the present case, there has been no independent assessment of the objections of the Appellant, and the commencement of the personal insolvency proceedings against the Appellant has been directed solely on the basis of the report of the Resolution Professional. 40. Briefly speaking the Appellant argues that when a fresh sanction letter dated 24.10.2018 was issued, whereby the overall limits were enhanced by almost Rs. 168/- crores, it would be a novation of contract as per Section 62 of the Indian Contract Act, 1872. The Appellant claims that there had been an offer and acceptance of a new credit facility limit, which clearly amounts to a novation of contract in which the Appellant was not privy. Moreover, after the resignation of the Appellant from TEL - the CD as a Director, the Appellant cannot be held liable for the personal guarantee, as there has been a novation of the contract. 41. Since the appellant has relied extensively on the provisions of the deed of guarantee and also Indian Contract Act 1872 relating to the provisions for novation and revocation of the continuing guarantee and discharge of surety due to variance in terms of the personal guarantee/c....
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....nt, who had signed the renewal of personal guarantees in June 2020, and not the Appellant. Therefore, in such situation, there have been material alterations and novation leading to an abandonment of the deed of guarantee dated 17th October 2017. 44. We find that such an argument of the appellant is not sustainable. As noted by us here in separately, the Appellant had signed a deed of guarantee, which does not stand revoked by the resignation of the Appellant from the directorship of the corporate debtor. Furthermore, we have also noted separately herein that there is no novation of the contract. Therefore, both these grounds cannot be sustained. We also observe that notice u/s. 13(2) dated 17.11.2021 that the debt claimed and guarantees invoked in the same, were only in respect to the limits granted under the documents executed on 17.10.2017 ['Schedule A' of the said notice u/s. 13(2)]. Even Loan Recall Notice dt. 15.11.2022 and Original Applicant bearing OA No. 484 of 2022, filed before DRT-I, New Delhi don't show any reference to Renewal Sanction Letter dt. 01.01.2019. 45. We find that, with respect to the claim of the Appellant that, in view of his resignation from CD, he....
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....f the credit facilities was contemplated, which would not have the impact of releasing a personal guarantor from their liability. However, in the present case, it is not where the internal limit has been enhanced or varied within the overall limits. Thus, the deed of guarantee itself implies that if in case there is an enhancement of overall credit facilities, the personal guarantor would be deemed to be discharged. The Appellant claims that in this case there has been variance, as there has been an increase in the overall limits of almost Rs. 168 crores, which materially impacts the liability of the sureties. Therefore, such variance would necessarily be considered as material, warranting a complete discharge of the guarantor. 49. Vehemently countering this argument Respondent SBI brings to our notice that the renewal of Sanction Letter dt. 01.01.2019, even if assumed to have been put in effect, did not cause any enhancement of facilities by the SBI which continued to remain @ Rs. 117/- crores. Various clauses of deed of guarantee dated 17.10.2017 including the Clause Nos. 8, 11 and 14 per which guarantees were continuing and any modification or variation to the terms of loan w....
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.....". We note that the guarantee, as in the present Deed of Guarantee, is a continuing one and cannot be discharged by the resignation of the director from the Corporate Debtor and the argument of the Appellant that the adjudicating authority has incorrectly interpreted Clause 8 of the Deed of Guarantee is not sustainable. Therefore, the argument of the Appellant that, in terms of the Deed of Guarantee which contemplates revisions and modifications within the first facility limit of Rs. 907/- crores, is entitled to a discharge of his personal guarantee is not tenable. Thus, we do not find any infirmity in the order of the adjudicating authority that if there is any increase in the sanction limit without the consent of the guarantor, then also he shall still be liable for the debt which existed prior to its variance. 53. With respect to the applicability of Section 129^1 of the Indian Contract Act, 1872, a continuing guarantee is defined as a guarantee which extends to a series of transactions. The Appellant claims that it had resigned from the directorship of the corporate debtor and the CD had addressed multiple communications to the consortium of banks regarding the resignation ....
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....b National Bank whereby it was held that it was not open to a party to revoke a guarantee when he had agreed to it being a continuing one and thus would be bound by the terms and conditions of the agreement executed at the time of entering into the guarantee. In the present facts and circumstances, we, therefore, do not find any difficulty in affirming the concurrent findings of the High Court and of the trial court on the point that the agreement executed for the purpose of a continuing liability despite the variation of terms of the contract and in the absence of a specific written document by Basavaraj (since deceased) revoking the guarantee, the guarantee stands and the legal representatives of the deceased are liable to repay the loan. 17. With regard to the second issue, the learned counsel for the appellants contended that the contract between JKNP, the Bank and the guarantor Basavaraj had been substituted by a fresh contract by which LST was required to liquidate the amount outstanding. The learned counsel based this on two facts mainly. One was the transfer of the loan accounts from JKNP to LST and the other factor was the deposit of amounts by the Receivers appoi....
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....s per Section 133 of the Indian Contract Act 1872, any variance made without the surety's consent, in terms of the contract between the principal debtor and the creditor, discharges the surety as only qua the transactions subsequent to the variance. The surety continues to be liable for transactions affected before such variation. Such a position has been held in the pronouncements of this Appellate Tribunal in various cases as noted herein under: • SBI Vs. Guourishankar Poddar & Anr [2024 SCC Online NCLAT 2014] - para Nos. 26, 30, 32, 36, 40 to 42 & 46-47. • Sri Vibu Venkatsubramanian vs. State Bank of India & Anr. [Company Appeal (AT) (Insolvency) No. 1228 of 2024 dt. 26.02.2026]" 58. With reference to registration of debt with NeSL (i.e. information utility) is concerned the argument of the appellant that the amount overdue is indicated 0.00 is misconceived. The debt registration commenced from March 2018 (after disbursement is in pursuance to loan and guarantee document dated 17.10.2017). Till 30.04.2019 the amount overdue is indicated 0.00 since the account was either running regular or had only slipped in the category of SMA-0 with default up ....