TaxTMI 
TaxTMI 
2026 (9) TMI 1287
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....bunal Bench-IV, at Mumbai in C.P. (IB) NO. 808/MB/2023 titled as 'Janakalyan Sahakari Bank Limited v. Ravindra Gopalkrishan Agarwal', wherein the Hon'ble NCLT has admitted the petition of the financial creditor under Section 95 of the IBC, thereby initiating the Personal Insolvency Resolution Process, against the personal guarantor, i.e., the Appellant herein. Brief facts of the case 2. Respondent-Janakalyan Sahakari Bank Ltd through Resolution Professional. The Corporate Debtor - Oasis Alcohol Limited was granted credit facilities by a consortium of lenders, being co-operative banks, in the year 2010. The consortium involved 11 member banks namely; 1) Janata Sahakari Bank Ltd., Pune [Lead Bank] 2) TJSB Sahakari Bank Ltd. 3) Solapur Janata Sahakari Bank Ltd. 4) The Vaidyanath Urban Co-operative Bank Ltd. 5) Nagpur Nagarik Sahakari Bank Ltd. 6) SVC Co-operative Bank Ltd. 7) Janakalyan Sahakari Bank Ltd. [present Respondent] 8) Janaseva Sahakari Bank (Borivli) Ltd 9) Poornawadi Nagarik Sahakari Bank Ltd. 10) Deogiri Nagari Sahakari Bank Ltd. 11) Bhagyalaxmi Mahila Saha....
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...., whereby the Appellant became jointly and severally liable to pay under reference by the Award. Subsequently, the Company executed a MOU and lease agreement dated 16.12.2017 with M/s Rajlakshmi Petrochem Pvt. Ltd. ("Corporate Guarantor"), transferring its properties thereto, with the Corporate Guarantor undertaking to settle all liabilities. The said arrangement was thereafter acknowledged by the lead bank too in its sanction letter dated 05.06.2018, whereby the Corporate Guarantor was obligated to abide by the terms agreed between the parties. Hon'ble NCLT admitted the Section 7 Petition [CP(IB)-3619/I&BP/MB/2018], initiating CIRP against the Company on 06.03.2019. Further, O.A. No. 132/2017 filed by the Respondent before the DRT, Pune was dismissed for want of evidence on 12.07.2019. Notably, on 21.08.2020, the Respondent unconditionally assigned the loans and underlying security interest to M/s CFM Asset Reconstruction Pvt. Ltd. ("Assignee"), a material fact, which was withheld and suppressed by the Respondent before the Tribunal, having vital bearing. The said assignment also stands duly recorded in the order dated 01.12.2022 that was passed by the Hon'ble NCLT, whereb....
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....fault, and that persons who are jointly and severally liable for the same debt, equally owed by both, they do not fall within the definition of a contract of guarantee. This position is further fortified by Lima Leitao and Co. Ltd. v. Union of India, MANU/GO/0034/1967, where the Hon'ble High Court of Bombay at Goa, held that the liability of a guarantor is inherently secondary and contingent, presupposing the existence of an independent liability of the principal debtor. Since Clause 7 of the arbitral award expressly imposes joint and several liabilities upon all opponents including the Appellant too, the Appellant's obligation is no longer secondary or contingent but primary with that of the principal borrowers. Further, the Respondent's contention that the arbitral award did not alter the terms of the original guarantee is explicitly negated by the letter dated 12.02.2021 issued by the lead bank, wherein it was categorically recorded that the arbitral award had finally and conclusively determined all rights and liabilities of all signatories, and that as a consequence thereof, all earlier documents had lost their significance and stood crystallised in the form of the ....
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....nsferred to the ARC..." It is further fortified by the fact that the Assignee sold the very property mortgaged in favour of the Respondent as security for the said credit facility, being land admeasuring 3252.66 sq. mtrs., Gata No. 36/2/B/1, Village Khadgaon, Latur vide Sale Certificate dated 04.08.2021. The sale of the mortgaged property by the assignee in itself is a conclusive proof that the debt, together with all underlying security interests, had validly vested in the assignee prior to such sale, for it is only upon a valid and subsisting assignment of the debt and the accompanying security that the assignee could have assumed the power to sell the said mortgaged property. The Respondent's contention that it did not assign its debt to the Assignee and that no Assignment Agreement was executed by it is directly contradicted by the documents on record which have a precedentary evidentiary value. It is further pertinent to note that the Respondent has failed to produce or place on record the deed of assignment before this Hon'ble Tribunal. In the absence of the deed of assignment, an adverse inference must be drawn against the Respondent, and it must be presumed that the....
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....erlying securities to the assignee on the ground that it did not itself execute such assignment and that the assignment agreement was entered into between the lead bank and the assignee is a deliberate misdirection. The consortium of lenders acted as a collective body under the Inter-Se Agreement dated 21.06.2010 and any enforcement of rights by any one consortium member through CFM Asset Reconstruction Pvt. Ltd. necessarily affects the composite debt and corresponding guarantees in their entirety. It is respectfully submitted that the assignment of debt without the consent of the personal guarantor, fundamentally altered the rights and liabilities of the parties and thereby amounted to a novation of contract as per Section 62 of the Indian Contract Act, 1872. It is further submitted that the Appellant's secured property was sold by CFM Asset Reconstruction Pvt. Ltd. as assignee of the debt of the consortium members, vide Sale Certificate dated 4th August 2021 and the proceeds thereof have already extinguished the secured liability. The Respondent cannot be permitted to ignore the benefit derived from such recovery while simultaneously initiating further insolvency proceedings ....
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....award dated 23.03.2017, by virtue of which the Appellant's liability novated from that of a "guarantor" to a "co-debtor. Accordingly, any default subsisting prior to the arbitral award stands extinguished and regularised by virtue thereof, and the period of limitation must therefore be computed from the date of default, if any, under the arbitral award alone, and not from any prior date. Thirdly, the payments made by the Appellant/Corporate Debtor pursuant to the arbitral award cannot be construed as an acknowledgment of debt so as to extend the period of limitation under Section 19 of the Limitation Act, 1963. Explanation (b) to Section 19 categorically provides that payment made on account of a decree or order of a court does not extend the period of limitation. The arbitral award, being in the nature of a deemed decree, falls squarely within the purview of the said explanation, and any payments made pursuant thereto cannot operate to extend the period of limitation against the Appellant. Fourthly, the Respondent's belated attempt to shift the date of default to '13.09.2020' is equally untenable. The mere issuance of a demand notice under Section 13(2) of the SARF....
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....extinguished or altered the terms of original loan agreement and has neither altered the original contract of guarantee executed by the applicant nor his status as "Personal Guarantor". The award simply provided for a fresh repayment structure/timeline towards the debt already due and under default. The applicant's claim that they ceased to be a guarantor and became a co-debtor is not supported either by the terms of the award or by law. The arbitral award clearly stipulates "that in the event of any default, the Opponents personally and their properties and their legal heirs, legal representatives, .................... etc. shall be liable to pay the entire amount ". Moreso, neither any fresh loan documentation as such was required as a result of this award or was entered into with or by either party. The appellant did not bother to annexe the arbitral award along with its appeal, but the same was placed on record by the respondent. Furthermore, the contention regarding incorrect calculation of quantum of debt is absurd and clearly unwarranted. The loan account statements forming part of Section 95 petition filed by the Respondent clearly demonstrates that the amount under def....
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....he principal debtor unless the entire debt is satisfied. Mere sale of assets by an assignee of another loan does not, in itself, extinguish the guarantee. Therefore, no procedural irregularity or suppression of material facts can be attributed to the Respondent, and there is no ground to set aside the impugned order. Additionally, the fact that the Assignment Agreement dated 21.08.2020 was not brought on record by the Respondent is irrelevant, as the Respondent is not a party to that agreement. The agreement relates to the assignment between other lender in consortium and CFM ARC. As such, the question of concealment or suppression of that document by the Respondent does not arise. 16. On the argument of the appellant that there was a restructuring of the loan by the assignee i.e. M/s CFM ARC without the personal guarantor's consent and appellants 'claims that constitutes a material variation in terms of the original contract for which the guarantee was executed, and thereby discharges the guarantor from liability under Section 133 of the Indian Contract Act, the Respondent denies the allegation that any restructuring of the loan or alteration of contractual terms was carrie....
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..... Because under the terms of Clause 19 of the Guarantee Agreements dated 20.03.2010 and 08.08.2011, the guarantors have undertaken liability not only towards repayment of the disbursed loan amount, but also towards accrued interest, liquidated damages, costs, charges, expenses, and all other consequential liabilities arising therefrom. Accordingly, the Appellant's attempt to restrict the scope of liability is untenable and contrary to the contractual stipulations binding upon the parties. [Clause 19 of Guarantee Agreements, Annexure R/2 - relevant page no. 40 to 46]. 18. On the contention of the appellant that the petition is time barred, the respondent brings to our notice that after a careful reading of the various assertions made by the Appellant shows that the appellant is clearly confused as to its status as "Guarantor" or "Co-debtor" and further, as to the fact that when has default actually taken place. On one hand, he has claimed that the debt was regularized as a consequence of an arbitral award whereas on the other hand, claiming that the petition is filed beyond 8 years of the alleged date of default. Going by the appellant's view, the default stood regularise....
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....nnexure - R/3" respectively. Reliance is also placed on the judgement of this Hon'ble Appellate Tribunal in the matter of "Asha Basantilal Surana vs State Bank of India & Ors. [Company Appeal (AT) (Ins.) No. 84/2025]", as also in the matter of "Mavjibhai Nagarbhai Patel vs State Bank of India & Ors [Company Appeal (AT) (Insolvency) No. 1702 of 2024)". Another averment of the Appellant [i.e. Hon'ble NCLT erred in not considering whether payments made towards the arbitral award could be construed as an acknowledgement of debt under Section 19 of Limitation Act, 1963, particularly with reference to Explanation 2 under Section 19], is answered under this ground only as it is in reference to the repayments mentioned in the table above. It is submitted that an arbitral award is not a "decree or order of a court" for the purpose of Explanation (b) to Section 19 of the Limitation Act. A decree is an adjudication by a "Court" within the meaning of the CPC, whereas an arbitral award is rendered by a private arbitral tribunal based on a contractual agreement. The respondent has relied on the following judgments to press upon the point relating to the arbitral award: • ....
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.... the Appellant was consequently commenced. The question before us is whether the impugned order suffers from any error of law or material irregularity warranting interference by this Appellate Tribunal. Arbitral award dated 23.03.2017 and vis-à-vis status of the Appellant 23. The Appellant strongly argues that, as per the arbitral award dated 23.03.2017, the relationship between the parties underwent a material alteration. The Appellant, who was earlier a guarantor to the loan transaction, stood converted into a co-debtor/co-borrower as per the express terms of the consent award itself. The Appellant has relied on Clause 7 of the arbitral award, which provides that the opponents, including the Appellant, shall pay, "jointly and severally", to the lead bank for itself and on behalf of all the consortium banks, including the Respondent. 24. We are unable to accept this contention. The use of the expression "jointly and severally" in the arbitral award does not, by itself, establish that the original contract of guarantee was extinguished. It also does not establish that the Appellant acquired the legal status of a co-borrower. Because the consent award, will not alter....
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....deed will fall under Section 129 of the Contract Act. The Clause is extracted as below: "16. The guarantee shall be irrevocable and the obligations of the guarantor/s hereunder shall not be conditional on the receipt of any prior notice by the guarantor or by the borrower. The demand or notice by the bank, as provided in clause 20 hereof, shall be sufficient notice to or demand on the guarantor/s." 30. These provisions are important for reference here because they demonstrate the intention of the parties that the guarantee would continue until the secured dues were fully discharged. There is no material on record to show that the Respondent expressly released the Appellant from the guarantee or entered into a substituted contract with him. 31. The Appellant has placed reliance on two judgments which are being discussed herein. The Appellant claims that in Vyravan Chettiar v. Official Assignee of Madras, ILR (1932) 55 Mad 949, the Hon'ble Madras High Court categorically held that a contract of guarantee under Section 126 of the Indian Contract Act is strictly confined to cases where one party agrees with the creditor to discharge the liability of a third person upon t....
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....signed its debt, was required to place material establishing such assignment. No assignment deed executed by the Respondent has been shown to us. The existence of an assignment between another consortium lender and CFM ARC cannot, by itself, establish assignment of the Respondent's independent debt. 38. The fact that CFM ARC sold the property of the Appellant also does not within itself lead to a different conclusion. The sale could have been pursuant to the rights acquired by CFM ARC from the lender or lenders whose debt was assigned to it. Such sale does not, without further evidence, establish that the Respondent assigned its own debt or the rights arising under its guarantee. 39. The Appellant has also relied upon the MOU dated 16.12.2017 and the payments made by the Corporate Guarantor. Even assuming that the Corporate Guarantor undertook to discharge the liabilities of the Corporate Debtor, such an arrangement does not automatically by itself amount to a release of the Personal Guarantor by the Financial Creditor. 40. There is no material before us showing that the Respondent expressly by executing any document had released the Appellant from his continuing guarantee....
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....cturing or that the Respondent altered the terms of its own contract with the Appellant. 48. There is also a specific clause in the guarantee as noted herein earlier in para 28 providing that the liability of the guarantor would not be affected by variations, alterations, modifications, waiver, dispensation with or release of security. In the absence of proof that the Respondent released the Appellant or entered into a substituted contract, the plea under Section 133 cannot succeed. Whether the petition was time-barred 49. The Appellant contends that the petition is barred by limitation. According to the Appellant, the original default occurred much earlier and the arbitral award dated 23.03.2017 could not create a fresh period of limitation. 50. The Respondent, on the other hand, relies upon the subsequent repayment arrangement, the demand notice dated 16.07.2020 and the default which occurred after expiry of the period granted under that notice. The relevant chronology appearing from the record is as follows: Date Particulars 13.06.2016 Invocation of guarantee by issuance of 13(2) demand notice under SARFAESI Act, as also acknowledged in Arbitral Award.....
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.... Appeal (Civil) 4130 of 2006], as well as the decision of the Hon'ble Allahabad High Court, in State of UP vs Shri Rajveer Singh [2024:AHC:66171], delivered on 18.03.2024. Thus, the Appellant's contention that payments made pursuant to the Arbitral Award cannot constitute acknowledgment of debt in view of Explanation 2 to Section 19 of the Limitation Act, 1963 is therefore dismissed. 54. In view of the subsequent default relied upon by the Respondent and the filing of the petition in May 2023, we find no merit in the plea that the Section 95 petition was barred by limitation. Liability of the Appellant and alleged contractual cap 55. The Appellant contends that his liability is capped at Rs. 6.5 crores under the guarantee dated 20.03.2010 and at Rs. 2.5 crores under the guarantee dated 08.08.2011. The Respondent disputes this interpretation and relies upon Clause 19 of the Guarantee Agreements. 56. The liability of the guarantor has to be determined from the terms of the guarantee documents. The Respondent has specifically relied upon Clause 19, under which the guarantors have undertaken liability not only towards repayment of the disbursed loan amount but also towards ....
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....the contractual right to invoke the Appellant's continuing guarantee. 65. The Appellant has failed to establish that the Respondent assigned its debt to CFM ARC. The assignment relied upon by the Appellant relates to another consortium lender or lenders. The sale of the Appellant's property by CFM ARC does not, by itself, establish that the Respondent's debt or its rights under the guarantee were assigned. 66. We further find that the arbitral award dated 23.03.2017 did not novate or extinguish the original guarantee. The Award provided a repayment arrangement and expressly contemplated continuing liability in the event of default. There is no material to establish that the Respondent released the Appellant from the guarantee or substituted the guarantee with a new contract. 67. There is also no material to establish a variation by the Respondent which could attract Section 133 of the Indian Contract Act, 1872. The guarantee itself contains provisions relating to variations and continuing liability. 68. The petition under Section 95 was filed within the period of limitation on the basis of the subsequent default dated 13.09.2020 relied upon by the Respondent. The plea o....