2022 (1) TMI 1073 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Appellant’ submits that the Appellant/Corporate Debtor is not the Principal Borrower but who issued a Guarantee which stood discharged from all the obligations by operation of Law, in terms of the Indian Contract Act, 1872 - time limitation - Right of Surety - Contract of ‘Guarantee - Indian Contract Act, 1872 - HELD THAT:- This ‘Tribunal’ significantly points out that when a ‘Demand’ is made on the ‘Guarantor’ and when the 1st Respondent/Bank had invoked the ‘Bank Guarantee’ against the ‘Corporate Debtor’ on 08.12.2014 and also issued a ‘Demand Notice’ to the ‘Corporate Debtor’ on 25.08.2017 and a ‘Reply’ was furnished to the 1st Respondent/Bank by the ‘Corporate Debtor’ on 27.09.2017 wherein at paragraph 2, the ‘Corporate Debtor’ had stated in a ‘crystalline and unequivocal term’ that it was required to pay to the Bank, due amount of ₹ 48.39 crores and also at paragraph 6 had made a request to the 1st Respondent/Bank not to initiate any action under IBC etc. and in the teeth of the ‘Debt’ being not time barred against the ‘Principal Debtor’, the ‘Limitation’ begins to run only cementing on the ‘Demand’ made for the repayment of due amount as opined by this ‘Tribunal’.

As a matter of fact, in the ‘Reply’ dated 27.09.2017 of the ‘Corporate Debtor’ addressed to the 1st Respondent/Bank, the Corporate Debtor had mentioned ‘GNIC has failed to pay its dues to IDBI, as a result of which IDBI has invoked the abovementioned Guarantees and called upon Wizcraft to pay IDBI their due of ₹ 48.39 crores’. Therefore, the aforesaid contents of Reply dated 27.09.2017 of the Corporate Debtor is ‘an acknowledgement of liability’. Also that a ‘Debt’ liability of a person can be projected and enforced by a ‘Creditor’ through initiation of numerous proceedings known to Law - If an ‘Acknowledgement’ is valid, then, there is no fetter in ‘Law’ whereby the liability against the particular person/entity can be enforced, in accordance with Law. In Law, an ‘Acknowledgement of Liability’ merely extends the limitation period and does not create a’ new right of action’.

A ‘Guarantor’ is one who ‘Guarantees’ to ‘perform the promise’ of or ‘discharge the liability of a person’ for whom he stands Guarantee. In regard to any ‘Debt’ incurred by ‘Principal’ during the currency of ‘Guarantee’ the ‘Surety’ is liable as long as the ‘Debt’ is recoverable from ‘Principal’. It does not matter that the ‘Principal’ has kept the ‘Debt’ alive by an ‘acknowledgement’ under Section 19 of the Limitation Act, 1963 or by payments under Section 20 of the Limitation Act for, by these actions, there is no ‘Renewal of Debt’ and no new ‘Debt’ is created, which is not covered by ‘Guarantee’. As a matter of fact, the ‘Debt’ remains the same, viz., the ‘Debt’ ‘Guaranteed’ and only the ‘bar of time’ against recovery is postponed - An Agreement executed by a ‘Guarantor’ is a separate and collateral contract distinct from the contract of debt between ‘Principal Debtor’ and ‘Creditor’. It cannot be brushed aside that an ‘Acknowledgement of Liability’ will save liability only against the person who acknowledges the liability.

A ‘Financial Creditor’ is entitled to initiate ‘CIRP’ against a ‘Guarantor’ or ‘Surety’ although the Creditor holds enough security over the assets. A Surety has no right to dictate terms to the ‘Creditor’ as to how he ought to make a ‘recovery’ and pursue his remedies against the ‘Principal Debtor’ at his instance - The ‘Financial Creditor’ has the option of commencing the ‘Insolvency’ proceeding against the ‘Corporate Grantor’ only without even resorting to any legal proceeding against the ‘Corporate Debtor’.

Admittedly, there is an ‘undischarged live liability’ and the amount due to the Bank has not been paid by the ‘Corporate Debtor/Guarantor’ of the ‘Principal Debtor’. For the undischarged live liability for which the ‘Guarantor’/Corporate Debtor has obliged by its three ‘Corporate Guarantee Agreements’ dated 26.06.2009, 25.02.2010 and 14.01.2013, it is undoubtedly responsible for the liability of ‘Principal Debtor’ - this ‘Tribunal’ unhesitatingly comes to a consequent conclusion that the ‘Guarantor’ had waived all rights as ‘Surety’ and assumed more liability.

As far as the present case is concerned, the ‘Corporate Debtor’ through its Reply/letter dated 27.09.2017 addressed to the 1st Respondent/Bank had mentioned that it understood the ‘GNIC/Principal Borrower’ had failed to pay its dues to IDBI (1st Respondent) of which the IDBI had invoked the ‘Bank Guarantees’ and called upon the ‘Corporate Debtor/Guarantor’, to pay the Bank the dues of ₹ 48.39 crores and also the ‘Corporate Debtor/Guarantor’ had requested the 1st Respondent/Bank not to initiate any action under the I&B Code etc. and this Letter/Reply dated 27.09.2017 is an ‘Acknowledgement’ of the ‘Debt’ which extends the period of ‘Limitation’ in conformity with Section 18 of the Limitation Act, 1963 - In order to sustain an ‘Application’ under Section 7 of the Code, an applicant must satisfy the conscious of the ‘Adjudicating Authority’ about the existence of ‘Debt’ which is due from the ‘Corporate Debtor’. It is true that the ‘Adjudicating Authority’ is to find out whether there is ‘Debt’ and ‘Default’ committed by the ‘Corporate Debtor’. Always it is open to the Corporate Debtor that a ‘Default’ had not occurred. Moreover, it is open to the ‘Corporate Debtor’ to point out that the ‘Debt’ is not payable by it either in Law or in fact.

In the instant case, the ‘Corporate Debtor/Guarantor’ had committed ‘Default’, as per the ingredients of Section 3(2) of the Code. The Section 7 Application under the Code was filed before the ‘Adjudicating Authority’ on 01.08.2019 by the 1st Respondent/Bank. Notwithstanding the fact that the ‘Account’ of the ‘Principal Borrower’(Great Indian Nautanki Company Private Limited) was classified as ‘Non-Performing Asset’ by the First Respondent/Bank in the instant case on hand, in regard to the ‘Debt’ incurred by the Principal Borrower for the ‘Loans’ availed by it and that the ‘Corporate Guarantee Agreements’ dated 26.06.2009, 25.02.2009 and 14.01.2013 were executed by the ‘Corporate Debtor’/Promoter Company of the Principal Borrower and since there is an undischarged ‘Live Liability’, in that the ‘Debt’ due and payable to the First Respondent/Bank was not paid by the ‘Principal Debtor’, by virtue of the aforesaid three ‘Corporate Guarantee Agreements’(‘Corporate Guarantee’) , the ‘Corporate Debtor’ is responsible for the liability of the ‘Principal Borrower’/ Great Indian Nautanki Company Private Limited.

This ‘Tribunal’ keeping in mind of a primordial fact that the ‘Debt Liability’ is arising from the Guarantee, which is due and payable as per the invocation of ‘Corporate Guarantee’ by the First Respondent/Bank on 08.12.2014 and the ‘Guarantee Agreements’ are ‘Independent Rights’, containing separate and reciprocal obligations and taking note of the fact that the ‘Corporate Debtor’ had issued a Reply on 27.09.2017 to the ‘Demand Notice’ of the First Respondent/Bank dated 25.08.2017, which is an ‘Acknowledgment’ of Liability of the ‘Corporate Debtor’ which extends the period of Limitation from 27.09.2019 to 26.09.2020 under the Limitation Act, 1963 (even though the ‘Account’ of the Principal Borrower was classified as NPA on 29.07.2014) and as such, the Section 7 Application filed by the First Respondent/Bank on 01.08.2019 is well within the period of three year’s Limitation Period as held by this ‘Tribunal’ - the ‘impugned order’ of admitting the Application filed by the First Respondent/Bank (under Section 7 of the I & B Code, 2016) against the ‘Corporate Debtor’, by the ‘Adjudicating Authority’ is free from legal flaws.

Application dismissed.