TMI Blog2018 (3) TMI 902X X X X Extracts X X X X X X X X Extracts X X X X ..... uptcy Code, whereby we have not found any sufficient cause to stay these proceedings against these Corporate Debtors. On having already stated the Creditor has furnished the material showing existence of debt and default by the principal borrower, these Company Petitions are in fact fit to be admitted for declaration of moratorium as envisaged under Section 14 of the Code. - C.P. NOS. 1397 & 1398/I And BP/2017 - - - Dated:- 1-2-2018 - MR. B. S. V. PRAKASH KUMAR AND MR. V. NALLASENAPATHY, JJ. For The Petitioner : Sandeep Bajaj and Ms. Nishtha Sikroria For The Respondent : Ashish Pyasi and Umang Thakar ORDER Per B. S. V. Prakash Kumar, Member (Judicial) These are two separate Company petitions filed by this Financial Creditor, namely Bank of India against Gupta Infrastructure (India) Pvt. Ltd. (CP 1397/2017) and Gupta Infratec Pvt. Ltd. (1398/2017) on the same facts stating that these two Corporate Debtor Companies, Gupta Corporation Pvt. Ltd. and one Gupta Global Resources Pvt Ltd. executed a Deed of Guarantee on 12.7.2014 standing as Guarantors to the working capital facility availed by their own group company, namely, Gupta Coal India Pvt. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25 crores on the terms and conditions as set out in the Working Capital Consortium Agreement (WCCA) dated 14.2.2011 entered in between the borrower and BOI r/w WCCA dated 27.6.2014. (b) In this Agreement, it has been said that the terms and conditions in the WCCA reflect that the borrower shall procure and furnish an unconditional and revocable guarantee from the guarantors to the working capital lenders guaranteeing due repayment, payment and discharge by the borrower of the said facilities together with interest in respect to the facilities mentioned in the WCCA. (c) These Guarantors, in consideration aforesaid and the request of the borrower, have agreed to execute this Guarantee in favour of the working capital lenders on the terms appearing in this Deed. (d) In consideration of the above premises, the Guarantors jointly and severally covenanted and guaranteed to each of the working capital lenders in the terms subsequently mentioned. (e) In the event of default in payment of the facilities together with interest by the borrower, the Guarantors shall forthwith on demand being made in that behalf, pay, without any demur and notwithstanding any objection on the part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laration of confirmation or acknowledgement given by the borrower to the lenders shall be deemed to have been given by or on behalf of the guarantors. The guarantors shall not be released or discharged their obligations even if any variation made in the terms of working capital consortium agreement or any other security documents given by the borrower. (h) The guarantors further agreed that in the event the borrower enters into liquidation or winding up (whether compulsory or voluntary) or the management of the undertaking of the borrower is taken over under any law or the borrower/its undertaking is nationalized, the lenders may rank the guarantors as debtors and prove against the estate for paying off the amounts payable by the borrower until the entire claim of the lenders against the borrower for the full amount has been paid by the guarantors. (i) The guarantee given here is independent and distinct from any security that the lender has taken and that notwithstanding the provisions of sections 140 and 141 of the Indian Contract Act, 1872 or any other sections of that Act or any other law, the guarantors will not claim to be discharged to any extent because of the failure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to do is to prove to the satisfaction of the court that though execution of instrument is admitted, it is hit by one or other ground mentioned above. The basic reason perhaps for not providing trial in IBC proceedings is, credit availed by the debtor and guarantees given by guarantors reflect in various records of the respective company, banks and RoC, therefore the defence that is being witnessed day in and day out is non-filing of certificate, some fraction of deference in computation of claim amount, etc. If we see any case de hors all these frivolous technical flaws, it will be evident that debt is availed and defaulted. So if anybody going beyond this fact, it is nothing but breach of trust, which is the basic element present in an agreement entered between the parties. We don t say that parties should not raise the defences available to them; we only say how we have to deal with administration of justice when substratum is admitted by the assailing party. 5. Courts normally will not go into the advantages and disadvantages of the parties, we can t get into subjective perceptions of anybody or even of us, law is set out how to deal with it, parties apply their wisdom when t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed above. 8. Now against these company petitions, the star argument of the corporate debtors is, (1) that the deed of guarantee is not duly stamped therefore they could not act upon or looked into for it has been hit by section 34 of Maharashtra Stamp Act 1958, (2) that the principal borrower M/s. Gupta Coal Ltd. is already undergoing resolution process under IBC, hence this application not maintainable, (3) that the resolution plan, if any passed then it will be binding on this petitioner as well, (4) that guarantors being on the same pedestal as borrowers, the moratorium in respect to the principal borrower will also be applicable to the guarantors of the principal borrower, (5) that since the liability against the guarantors will not be crystallized until the proportionate realization by this financial creditor from the principal borrower company is not decided, this petitioner cannot proceed against these guarantors/corporate debtors, (6) that certain clauses of the deed of guarantee are void by virtue of being in contradiction to the provisions of sections 140, 141 of Indian Contract Act, (7) that the proceedings against these guarantors are liable to be stayed during the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce was issued to the principal borrower as well as these Corporate Debtors demanding repayment of the loan amount along with interest accrued, on having the principal borrower defaulted in making repayment, this Bench, by looking at the evidence reflecting existence of debt and default by the principal borrower and the demand notice to the Corporate Debtors/Guarantors demanding repayment of the loan facility the principal borrower defaulted, and having these debtors also failed to pay off the defaulted amount, it has to be construed that this Petitioner has furnished all the material reflecting existence of debt and default. De hors those technical objections mentioned above, for there being no denial to the substratum of the claim petitions, these petitions are fit for admission provided the petitions are not hit by the objections raised by the corporate debtors. 13. For this petitioner has furnished the material sufficient to admit this company petition, let us look into the technical objections raised by the Corporate Debtors to find out as to whether there is any merit in the objections raised by the Corporate Debtors Counsel or not. 14. On perusal of the defences set ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract. Our fear is that this document will not fall under this category, because Deed of Guarantee cannot be treated as standalone instrument newly creating some rights and obligations between the parties. 17. If we discern the provisions of the Contract Act, it is evident that it is immaterial whether there is any apparent benefit to the surety or not. It need not be reiterated that validity of any contract is always dependent upon the consideration passed against each other. But in any guarantee deed, whether it is tripartite or bipartite, only the guarantor binds himself agreeing to pay off the liability in the event the principal borrower defaulted in making repayment, for binding himself, guarantor does not receive any consideration either in past, present or future, still such contract is not hit by section 25 of Contract Act. Why so? Because it has been validated under section 127 with a definition that anything done or any promise made, for the benefit of the principal debtor, may be sufficient consideration to the surety for giving the guarantee. The consideration received by the principal borrower is taken to be sufficient consideration for the surety. Therefore, wha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be construed as sufficiently stamped. We must also mention that literal interpretation has to be given in levying stamp duty, but not a liberal interpretation which normally happens to beneficial legislation. 19. As to Letter of Guarantee is concerned, it cannot be said that a right is crystalized in favour of the lender until before the Corporate Debtor defaulted in making repayment to the lender. As on the date of execution of letter of guarantee, it is also not determinable how much stamp duty is to be paid by the guarantor. The right of proceeding against the guarantor and determination of the liability will be crystalized only after the borrower defaulted in making repayment of the debt. That being the situation, the rights created in favour of the lender are not immediately exercisable against the guarantors. In view of the same, it is also doubtful whether this instrument will fall under the category as mentioned by the Corporate Debtor Counsel. In most of the State Stamps Act, the stamp duty leviable against the letter of guarantee is mostly fixed as either ₹ 50 or ₹ 100 but whereas as here, under the category which is shown by the Corporate Debtor counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the help of the wrong he has done. It is an established proposition that the executant has to pay the stamp duty. Here the executants being Corporate Debtors, duty is cast upon them to pay stamp duty but not the holder of the Deed of Guarantee whereby, these Corporate Debtors could not get away from this liability solely on the ground the Deed of Guarantee is insufficiently stamped. 22. The Corporate Debtors Counsel relied upon SMS Tea (P.) Ltd. v. Chandmari Tea Co. (P.) Ltd. [2011] 14 SCC 66 to say that the instrument which is insufficiently stamped cannot be used in evidence or cannot be acted upon for any purpose whatsoever unless the same has been duly stamped. On perusal of the citation supra, it appears the document in question is an unstamped and unregistered lease deed, in which two contracts i.e. the lease agreement and Arbitration Clause have been rolled into one, whereby since the lease agreement which is required to be stamped and registered, not being stamped and registered, the said lease deed being invalid u/s. 49 of the Registration Act and 35 of the Stamps Act, the invalidity that attached to the main agreement being attached to the Arbitration Agreement a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Energy Systems (P.) Ltd. and State Bank of India holding that the Financial Creditor cannot proceed against guarantors during the moratorium period. It appears the said Ld. Tribunal has relied upon Section 140 of the Indian Contract Act to hold that if the Financial Creditor during CIRP period is permitted to proceed against the personal guarantor of the principal borrower for recovery of the outstanding debt to the extent of the personal guarantee given, then the security interest, if any, of the Financial Creditor, shall get transferred to the Guarantor, which is against the purpose and object of the moratorium declared and is in violation of Section 14(l)(b) of IB Code, 2016, on this ground, the Ld. Tribunal restrained the creditor to proceed against the personal guarantor. 26. The Corporate Debtor Counsel further relied upon a citation in between Parvateneni Bhushayya v. Potluri Suryanarayana AR 1944 Madras to say that the guarantor has every right to step into the shoes of creditor once guarantor fulfils its obligations for payment of outstanding debt of the principal borrower, in view of this proposition, the Corporate Debtors Counsel says that since the right of the guara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven by the Guarantor (ii) the right of stepping into creditors shoes only a residual right exercisable by the guarantor provided any security is left after the debt has been realized from the principal borrower and the guarantors (iii) the right given to guarantor cannot be understood that if the security given by the principal borrower is exhausted, the guarantors are not liable to the guarantee given by them, (iv) since it is a right given to the guarantor to step into the shoes of the creditor, if on his own waives that right, such guarantor cannot even rely upon Sections 140 and 141 of the Indian Contract Act to say that Creditor shall not proceed against the guarantor, moreover, the guarantor will get jurisdiction to exercise this right only after the creditor realized the outstanding dues from the guarantor until such time even if it is assumed that the guarantor is still vested with that right, it remains premature until the liability of the principal borrower is discharged by the guarantor, (v) however, the guarantors themselves agreed that the liability of the guarantee shall not be affected by variance to the terms and conditions of the loan Agreement or winding up of bor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of Section 14, it can t be said that declaration of moratorium in respect to the properties of the corporate debtor and the proceedings against the corporate Debtor will suspend the right of the petitioner proceeding against the guarantors who have separately given guarantee to pay off the debt of the Creditors in the event the principal borrower defaulted in making repayment. By this proceeding, it will not have any bearing either on the moratorium declared in respect to the proceedings of the principal borrower or on any legal proceedings pending against/by the principal borrower. Therefore, it is incomprehensible to understand how the pendency of CIRP in the principal borrower company will have binding effect upon proceeding against the guarantors because if the creditors realise their debt in full or in part from the guarantors, he will not proceed any further against the Corporate Debtor likewise, if the debt is fully realised from the principal borrower, the creditors will not proceed any further against the guarantors. Such being the situation, the guarantors cannot say that since CIRP period is pending against the principal borrower, the right of suing against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Petitioner will not get the entire amount to its account from the proceeds of liquidation. 36. In view of the same, we have not found any merit in the arguments advanced by the Corporate Debtor Counsel, therefore, the aforesaid issue decided against the Corporate Debtors. Whether or not non-crystallization of realizable claim in distribution of assets will have any bearing in proceeding against the corporate debtors/guarantors. 37. For the Corporate Debtor themselves agreed that the right against the principal borrower and the corporate guarantors is co extensive, the creditor need not remain in waiting until the realisable claim is crystalized from the principal borrower. Since the right against the principal borrower not being extinguished in making the claim against the principal borrower, the creditor has every right as per law to proceed against the Corporate Debtors therefore, we have not found any merit in the arguments made by the Corporate Debtors Counsel. Whether these proceedings are liable to be stayed as prayed by the corporate debtors. 38. On perusal of the provisions of the Insolvency Bankruptcy Code as well as Indian Contract Act, we have not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 13 of the Code. (VI) That this Bench hereby appoints Mr. Ranjit Dnyanchand Jain, 107, Rachana Sahil Apartment, Ambazari, Nagpur, email ranjitdjain@gmail.com, Registration No. IBBI/IPA-001/IP-P00063/2017-18/10149 as Interim Resolution Professional to carry the functions as mentioned under Insolvency Bankruptcy Code. CP 1398/2017 (I) (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act); (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. (II) That the supply of e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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