TMI Blog2019 (3) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... e ‘principal borrower’ for the recalculated interest and consequently there is no debt that is due and/or payable hence there is no default by the ‘principal borrower’ with respect to interest. Which disentitles the Appellant to proceed in the present appeal. The process under the ‘I&B Code’, once set in motion, is irreversible and leads to exceptional and serious consequences. If the appeal is allowed that would mean suspension of the Board of Directors of the ‘Corporate Guarantor’, appointment of ‘Interim Resolution Professional’, so on and so forth. A running business, which has made no default, would be put under resolution process. On the other hand, if the ‘principal borrower’ pays the amount, if any, found payable upon reconciliation of accounts, it would confirm that there never existed any debt which is due and payable or defaulted by the ‘Corporate Guarantor’. The actions that would follow on allowing of this appeal cannot be reversed and the ‘Corporate Guarantor’ cannot be compensated in any manner. - Company Appeal (AT) (Insolvency) No. 51 of 2018 - - - Dated:- 16-1-2019 - Mr S.J. Mukhopadhaya, Chairperson And Mr Bansi Lal Bhat, Member (Judicial) For The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluding any converted Rupee amount ( s ) consequent upon default ( in the case of Loan in foreign currency ) or in payment of an interest, compound interest, additional interest, by way of liquidated damages or other monies in accordance with the Loan Agreement, or in the due compliance with any of the formalities for drawal of the Loan or otherwise in the observance or performance of any other terms and conditions of the Loan Agreement, then and in such an event, the Guarantor shall, within a period not exceeding seven days from the date of despatch or delivery by Exim Bank to the Guarantor of a notice in writing of such default by the Borrower, pay to Exim Bank at Mumbai, on first demand without delay, demur or protest and without any set - off or counter claim, the amounts specified in the notice in the manner required therein and until such payment, the Guarantor shall also be liable to pay further interest thereon including compound interest and additional interest by way of liquidated damages that may be payable by the Borrower to Exim Bank under the Loan Agreement . 4. It was submitted by the learned counsel for the Appellant that by virtue of Clause 8 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act as though the Guarantor were the principal debtor, jointly and severally liable with the Borrower . 5. Reliance has been placed on the decision of the Hon ble Supreme Court in Industrial Investment Bank of India vs . Bishwanath Jhunjhunwala [ 2009 ( 9 ) SCC 478 ] , wherein the Hon'ble Supreme Court considered clauses similar to Clauses 4 and 6 of the General Conditions extracted above and held that the guarantee was coextensive. According to the learned counsel, the Adjudicating Authority failed to consider the General Conditions . Clause 4 of the Deed of Guarantee only stipulates that the guarantor shall discharge its liability within 7 days of being given a notice in writing by the Creditor. Clause 4 does not define the nature of the guarantor's liability. However, the Adjudicating Authority dismissed the application solely on its finding that Clause 4 of the Deed of Guarantee recorded an agreement that the liability of the Respondent was not co-extensive with that of the principal borrower . 6. It was submitted that the Adjudicating Authority has relied on the decision of the Hon ble Supreme Court in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll not be affected by - .. ( ii ) discharge of the Borrower by operation of law or otherwise; . ( iv ) any defect or invalidity in or irregularity or unenforceability of the obligations of the Borrower under the Loan Agreement or under any security created or security document executed by the Borrower or any failure or delay in enforcement of such obligations or the absence of any action to enforce the same . ( v ) Any dispute or difference of any nature whatsoever that may arise between the Borrower and EXIM Bank under the Loan Agreement or under any document related thereto; . xxx xxx xxx 15 . The Guarantee shall be in addition to and not in substitution for another security which Exim Bank may now or hereafter hold for the obligations of the Borrower under the Loan Agreement and may be - enforced without Exim Bank being first required to have recourse to any such security or take any steps or proceedings against the Borrower 8. Referring to the aforesaid terms, it was submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... records of the information utility or on the basis of evidence furnished by the financial creditor, is important . This it must do within 14 days of the receipt of the application . It is at the stage of Section 7 ( 5 ) , where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the debt , which may also include a disputed claim, is not due . A debt may not be due if it is not payable in law or in fact . The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority . Under sub - section ( 7 ) , the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be . Stand of the Respondent - CHL Limited 11. Learned Senior Counsel for the Respondent submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borrower and the Appellant in terms of the final judgment of the Dushanbe Court despite representations made by the principal borrower . Without the reconciliation, as on date, there is no determination of the actual amount of interest which is due and payable by the principal borrower to the Appellant. In the absence of reconciliation, no demand has been made by the Appellant upon the principal borrower to pay the amount of recalculated interest. Without such demand made on the principal borrower , there cannot be an assumption of default by the principal borrower . 16. It was further submitted that in absence of default by the principal borrower , there can be no invocation of the corporate guarantee of the Respondent in view of Clause 4 of the Guarantee. In terms of Clause 4 of the Guarantee Agreement, only in the event of default by the principal borrower , the Appellant can invoke the guarantee and is required to give a notice stating the default made by the principal borrower along with amount payable specified in the notice. Admittedly, there is no demand made on the Respondent after the final judgment passed by the Dushanbe Court. Therefore, the liability o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the loans granted to the principal borrower along with interest (including additional penal interest), totalling to USD 35,164,530.13 in violation of the order dated 6th January, 2017. Importantly, as on that date, the proceedings at Dushanbe were pending. The Loan Agreement was suspended and, as such, there could not be any default by the principal borrower . Further, prior to issuing this notice, only a Letter dated 4th January, 2017 was issued whereby outstanding interest including penal interest of USD 869,277.84 as on 3rd January, 2017 was sought from the principal borrower , within 7 days of the said demand, which demand also got suspended along with the loan agreement in view of the order dated 6th January, 2017. The aforesaid suspended amount of USD 869,277.84 was mystically increased to USD 35,164,530.13, when in fact the obligations of the principal borrower in terms of the Loan Agreement stood suspended on 6th January, 2017. Despite the fact that there was no debt due and payable by the principal borrower, on 1st June, 2017, the Appellant sent guarantee invocation letter to the Respondent purportedly demanding an amount of USD 35,164,530.14. 21. The aforesai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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