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2023 (5) TMI 17 - AT - Insolvency and BankruptcyInitiation of CIRP - Corporate Guarantor - default in payment of guaranteed amount by the Corporate Debtor is the same default as is committed by the Principal Borrower - period of limitation for both the Principal Borrower and the Corporate Guarantor shall be same for the purposes of filing Section 7 application for the Bank or not - 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 or not - notice dated 01.10.2020 issued by the Bank to Guarantor can 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? - application filed by the Bank under Section 7 was barred by Section 10A or not. Whether default in payment of guaranteed amount by the Corporate Debtor is the same default as is committed by the Principal Borrower and the period of limitation for both the Principal Borrower and the Corporate Guarantor shall be same for the purposes of filing Section 7 application for the Bank? - HELD THAT - As per Section 128, the liability of the Surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. Law, thus, contemplates liability of the Surety i.e. Guarantor co-extensive with that of the Principal Debtor - The question of start of period of limitation against the Guarantor when the default committed by the Guarantor in non-fulfilment of its obligation as contained in the guarantee deed has come for consideration before the Hon ble Supreme Court in several cases. The Hon ble Supreme Court in Margaret Lalita Samuel vs. Indo Commercial Bank Ltd 1978 (9) TMI 180 - SUPREME COURT has observed that cause of action arises when the contract of continuing guarantee is broken i.e. breach is committed by the Guarantor to the guarantee given. The scheme of I B Code clearly indicate that both the Principal Borrower and the Guarantor become liable to pay the amount when the default is committed. When default is committed by the Principal Borrower the amount becomes due not 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 - 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. Whether 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? - HELD THAT - In view of the clear stipulation in the Deed of Guarantee, default on the part of the Guarantor cannot be treated to be on 05.09.2019, when it is alleged that the Principal Borrower committed default, nor the default on the part of the Guarantor can be on date of NPA i.e. 05.12.2019 for the purpose of present case. In the present case, admittedly, the Bank has issued notice dated 01.10.2020 to the Principal Borrower as well as to the Guarantor - Essel Infraprojects Ltd. Notice dated 01.10.2020 which has been brought on the record indicate that notice is addressed to the Principal Borrower and to Guarantors - When the Bank has given time to the Guarantor to make payment on 01.10.2020, there can be no default on part of the Guarantor on any earlier date. The default on part of the Guarantor thus has to be subsequent to the notice dated 01.10.2020 i.e. Non-payment within seven days as required - 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. Whether notice dated 01.10.2020 issued by the Bank to Guarantor can 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? - HELD THAT - 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. Whether the application filed by the Bank under Section 7 was barred by Section 10A? - HELD THAT - The application filed by the Bank under Section 7 was barred by Section 10A. The application under Section 7 filed by the Bank being barred by Section 10A could not have been admitted - Appeal allowed.
Issues Involved:
I. Whether default in payment of guaranteed amount by the Corporate Debtor is the same default as committed by the Principal Borrower and the period of limitation for both shall be the same for filing Section 7 application? II. Whether the Deed of Guarantee dated 17.05.2019 is a guarantee on demand and the limitation of Guarantor shall ensue only when demand is made to the Guarantor? III. Whether notice dated 01.10.2020 issued by the Bank to Guarantor can be treated as a 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 the period of Section 10A? IV. Whether the application filed by the Bank under Section 7 was barred by Section 10A? Summary: Issue No. I: The Tribunal examined the statutory scheme under the I&B Code regarding limitation when an application under Section 7 is filed against a Corporate Person, noting that Article 137 of the Limitation Act, 1963 applies, which provides a three-year limitation period from the date "when the right to apply accrues." The Tribunal referenced definitions under Sections 3(11) and 3(12) of the Code and relevant provisions of the Indian Contract Act, 1972, particularly Sections 126, 128, and 129. The Tribunal concluded that the liability of the Surety (Guarantor) is co-extensive with that of the Principal Debtor unless otherwise provided by the contract. The Tribunal also referenced several Supreme Court judgments, including "Margaret Lalita Samuel vs. Indo Commercial Bank Ltd." and "Syndicate Bank vs. Channaveerappa Beleri & Ors.," to support the principle that the limitation period for enforcing the liability of the Guarantor depends on the terms of the contract. Issue No. II: The Tribunal examined the Deed of Guarantee dated 17.05.2019, particularly clauses 1, 13, 14, and 20, which clearly contemplated demand by the Bank upon the Guarantor. The Tribunal referenced the Supreme Court judgment in "Syndicate Bank vs. Channaveerappa Beleri & Ors.," which held that the liability of the Guarantor depends on the terms of the contract. The Tribunal concluded that the Deed of Guarantee in question was a demand guarantee, and default on the part of the Guarantor would arise only when a demand notice is issued by the Bank. Issue No. III: The Tribunal noted that the Bank issued a notice dated 01.10.2020 to the Principal Borrower and the Guarantor, invoking the guarantee and demanding payment within seven days. The Tribunal concluded that the default on the part of the Guarantor could not be treated as occurring on any earlier date than 08.10.2020, which is subsequent to the notice dated 01.10.2020. Issue No. IV: The Tribunal concluded that the application filed by the Bank under Section 7 was barred by Section 10A, as the default on the part of the Guarantor arose during the prohibited period under Section 10A. The Tribunal further noted that the Adjudicating Authority had not considered the relevant clauses of the Deed of Guarantee and had erred in admitting the Section 7 application. Conclusion: The Tribunal allowed the appeal, setting aside the impugned order dated 01.03.2023, and concluded that the application under Section 7 filed by the Bank was barred by Section 10A.
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