TMI Blog2022 (1) TMI 1073X X X X Extracts X X X X X X X X Extracts X X X X ..... red 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Ravi Shankar Prasad, Senior Advocate with Mr. Deepak Shukla, Mr. Alok Singh, Mr. Ashutosh Shukla, Mr. Anurag Singh and Mr. Gaurav Bhardwaj, Advocates For the Respondent : No. 1 : Mr. Ritin Rai, Senior Advocate with Mr. Siddhartha Barua, Mr. Praful Jindal and Ms. Aditi Rao, Advocates JUDGMENT (Virtual Mode) M. VENUGOPAL, Member (J) Preface: The Appellant /suspended Director of the Corporate Debtor has preferred the instant Comp. App (AT)(Ins) 411 of 2021 being dissatisfied with the order dated 10.05.2021 in CP(IB)-3000/MB/2019 (Filed by the 1st Respondent/Financial Creditor/Applicant) passed by the Adjudicating Authority (National Company Law Tribunal, Court No. 1, Mumbai Bench, Mumbai). 2. The Adjudicating Authority (National Company Law Tribunal, Court No. 1, Mumbai Bench, Mumbai) while passing the impugned order dated 10.05.2021 in CP(IB)-3000/MB/2019 (Filed by the 1st Respondent/Financial Creditor/Applicant under Section 7 of the I B Code, 2016 at paragraphs-59 to 65 had observed the following: 59. The aforesaid judgment correctly hold that the suit for recovery based upon cause of action it is within limitation cannot be in any ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cientious view that this petition deserves Admission and admitted the Petition, declared moratorium and appointed Mr. Vinit Gangwal as an Interim Resolution Professional to conduct Insolvency Resolution Process. APPELLANT S CONTENTIONS 3. Challenging the legality of the impugned order dated 10.05.2021 in CP(IB)-3000/MB/2019 passed by the Adjudicating Authority (National Company Law Tribunal, Court No.1, Mumbai Bench, Mumbai), the Learned Senior Counsel for the 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 and further that the Application filed under Section 7 of the I B Code by the 1st Respondent/ Financial Creditor was hopelessly time barred. 4. According to the Learned Senior Counsel for the Appellant the 1st Respondent/Bank had shown two dates of Default i.e., 27.07.2014 for the Principal Borrower (GNIC) and 08.12.2014 i.e., date of invocation of Guarantee , as the date of Default of the Corporate Debtor . 5. It is represented on behalf of the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Contract Act, 1872. 9. On behalf of the Appellant , it is brought to the notice of this Tribunal that the 1st Respondent/ Financial Creditor /Applicant without the consent of the Appellant/ Corporate Guarantor had granted further time to the Principal Borrower which is evident from the e-mail dated 11.12.2015 and agreed on the maximum of adjustment of 5% of Daily Sales Collection of the Principal Borrower which was enhanced to 7.5% of the Daily Sales Collection of the Principal Borrower , effective from 14.12.2015. 10. The Learned Senior Counsel for the Appellant points out that the 1st Respondent/ Financial Creditor , during September, 2017 had initiated proceedings against the Principal Borrower and the Appellant under SARFAESI Act, 2002 and under RDBFI Act, 1993. Before the Debt Recovery Tribunal , the Appellant / Corporate Guarantor in its Notes of Written Submissions had denied their liability under the Corporate Guarantee submitted during November, 2018. In fact, the 1st Respondent/ Financial Creditor took over the possession of the Auditorium site (Kingdom of Dreams) being 5.66 Acres of Land valued more ₹ 500 Crores as a measure unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with a plea that the Adjudicating Authority had failed to appreciate that the 1st Respondent/Bank had neither sought any Condonation of Delay nor had made any averments that the period of limitation for filing the Petition was extended on account of any acknowledgement of debt or otherwise. Also that, the objection of the Appellant being novation of the contract, resulting into no default on account of the Corporate Guarantor and Limitation was not considered by the Adjudicating Authority at the time of Admission of the Petition and erroneously admitted the Petition and initiated the CIRP against the Appellant through dated 10.05.2021. 15. The Learned Senior Counsel for the Appellant takes a stand that 1st Respondent/Bank had not shown the debt of default in Part-V in Form I being the mandatory requirement and further that, there cannot be two dates of default . Moreover, it is the mandatory requirement to furnish the date of default at serial No. 8 of Part-V of Form-1 to count the period of Limitation and the 1st Respondent/Bank was granted time by the Adjudicating Authority to remove the defects. But such defects were not removed as per Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 2019 (11) SCC 633 and contends that Art. 137 of the Limitation Act, 1963 shall be applicable for an Application filed under Sections 7, 9 or 10 of the I B Code 2016, since the Account of the Original Borrower/Corporate Debtor was classified and declared as NPA on 29.07.2014. As such, the default commenced on 29.07.2014 and three year s period of Limitation was available for applying under Section 7 of I B Code, 2016. In short, the 1st Respondent/Bank cannot agitate its claim after the dated 29.07.2017. 21. The Learned Senior Counsel for the Appellant relies on the decision of the Hon ble Supreme Court in Shanti Conductors Pvt. V. Assam State Electricity Board and Ors. Reported in 2019 (19) SCC 529 (Civil Appeal dismissed on the ground Limitation)/2020 (2) SCC 677 (Review came to be dismissed on the ground of Limitation) for giving the benefit under Section 18 of the Limitation Act, 1963. 22. The Learned Senior Counsel for the Appellant refers to the decision of Hon ble Supreme Court in Gaurav Hargovindbhai Dave Vs. Asset Reconstruction Company (India) Limited and Anr. reported in (2019) 10 SCC 572, at spl. Page 574 wherein at paragraph 7 it is held that, It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 3 it is held as under: 3. Article 141 of the Constitution of India mandates that our judgments are followed in letter and spirit. The date of coming into force of the IBC Code does not and cannot form a trigger point of limitation for applications filed under the Code . Equally, since applications are petitions which are filed under the Code, it is Article 137 of Limitation Act which will apply to such applications . 27. The Learned Senior Counsel for the Appellant submits that the Application under Section 7 of the I B Code, 2016 was filed in July, 2019 with defects and the defects were not removed, although specific time was granted by the Adjudicating Authority and date of default was not mentioned in Form 1, Part V. 28. It is projected on the side of the Appellant that even without admitting that the Letter dated 27.09.2017 can be considered as an Acknowledgment , still the Application filed under Section 7 of the I B Code, 2016 is barred by Limitation, because the Application was filed on 01.08.2019 under the three year s period had expired on 29.07.2017. 29. The Learned Senior Counsel for the Appellant refers to Section 135 of the Indian Cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... romises on his part that he will at least once a month, see M make up the cash. B omits to see this done as promised, and M embezzles. A is not liable to B on his guarantee. 32. The Learned Senior Counsel for the Appellant puts forward a plea that the full remedy of surety was taken over by the Principal Borrower (GINC) which reached the Settlement/Agreement with the 1 st Respondent/Bank and more than ₹ 14 Crores was received. In fact, the acts of the 1st Respondent/Bank is not consistent with the Right of Surety . As such, the Surety ( Corporate Guarantee) given by the Appellant/Corporate Guarantor stood discharged and hence, the Debt is not payable by the Appellant/Corporate Debtor . 33. The Learned Senior Counsel for the Appellant cites the Judgment of the Hon ble Supreme Court dated 21.01.2021 in (Civil Appeal No. 4221/2020) between M/s Reliance Asset Reconstruction Company Ltd. V. M/s Hotel Poonja International Pvt. Ltd. whereby and whereunder at paragraph 38 it is observed as follows: 38. . In Transmission Corporation of Andhra Pradesh Ltd. Vs. Equipment Conductors and Cable Ltd. (2019) 12 SCC 697 this Court followed its earlier judgment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was dismissed by the Adjudicating Authority , vide its final order dated 10.05.2021. 38. The Learned Senior Counsel for the Appellant submits that now the 1st Respondent/Bank is not to be allowed to improve its Original Petition by bringing the additional documents and the Bank cannot project a new case, after a lapse of rectification period of seven days, as specified in Section 7(5)(b) of the I B Code, 2016 for the purpose of ascertaining the Default or for an extension of the Limitation Period . 39. The 1st Respondent/Bank had filed the Financial Statement for the period 01.04.2017 to 31.03.2018 which is ratified by the Board of Directors of the Appellant/Company on 22.08.2018. As such, the case of the 1st Respondent/Bank is time barred and it cannot reap the benefit of extension of Limitation Period, as enjoined under Section 18 of the Limitation Act, 1963. 40. The Learned Counsel for the Appellant refers to the judgement of the Hon ble Supreme Court dated 26.03.2021 in Laxmipat Surana V. Union of India and Others (vide Civil Appeal No.2734 of 2020) wherein it is observed that a right or cause of action would ensure to the financial creditor to proceed again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s observed as under:- 4. Adverting to the facts of this case, be it seen that in the application to Adjudicating Authority filed in prescribed format the date of default is recorded as 10th June, 2014 whereas the application under Section 7 came to filed on 19th September, 2018 i.e. more than four years after the default occurred. The time, for purposes of reckoning limitation in terms of Article 137 of the Limitation Act, would commence from the date of default i.e. 10th June, 2014 4 Company Appeal (AT) (Insolvency) No. 972 of 2020 which would neither be shifted not extended once a default has occurred. On the basis of such default the Financial Creditor, in the instant case, has approached Debts Recovery Tribunal on 20th October, 2015. In the given circumstances, it cannot lie in the mouth of the Appellant that the date of default gets extended on account of acknowledgment made in the OTS proposal emanating from the Corporate Debtor. There cannot be two defaults in respect of the same debt, one for the purpose of claim filed before the Debts Recovery Tribunal and the other for purposes of I B Code based on OTS proposal, more so when in application filed before the Adjudica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Learned Senior Counsel for the 1st Respondent/Bank that from Part IV of the Section 7 Application of the I B Code, 2016 (Page 240 of the Appeal Paper Book) r/w Annexure 7 (vide the Appeal Paper Book Page 401) it is clear that the date of default made by the Corporate Debtor is 08.12.2014, the date of invocation of Guarantee . 50. The Learned Senior Counsel for the 1st Respondent/Bank contends that at the Appellate Stage the new argument is tendered by the Corporate Debtor viz that the 1st Respondent/Bank has provided two different dates of Default and further that the applicable date of default is the date of Non-Performing Asset . 51. The Learned Counsel for the 1st Respondent/Bank adverts to the financial debt owed by the Principal Borrower falling under Section 5(8)(a) and that the financial debt owed by the Corporate Debtor falls under Section 5(8)(i). 52. The Learned Counsel for the 1st Respondent/Bank comes out with a plea that financial debt owed by each individual is, therefore, not the same (although it may arise out of or be connected to the same loan) and hence, the dates of default (or commencement of limitation) will be different. 53. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Ors reported in 1992 3 SCC 159 at Spl. Page 166 wherein at paragraph 16 to 18 it is observed as under:- 16. In Halsbury's Laws of England Forth Edition paragraph 159 at page 87 it has been observed that it is not necessary for the creditor, before proceeding against the surety, to request the principal debtor to pay, or to sue him, although solvent, unless this is expressly stipulated for. 17. In Hukamchand Insurance Co Ltd Vs. Bank of Baroda, AIR (1977) Kant 204, a Division Bench of the High Court of Karnataka had an occasion to consider the question of liability of the surety vis-a-vis the principal debtor. Venkatachaliah, J. (as His Lordship then was) observed:- The question as to the liability of the surety, its extent and the manner of its enforcement have to be decided on first principles as to the nature and incidents of suretyship. The liability of a principal debtor and the liability of a surety which is co-extensive with that of the former are really separate liabilities, although arising out of the same transaction. Notwithstanding the fact that they may stem from the same transaction, the two liabilities are distinct. The liability of the surety ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to a transfer of the mortgaged securities to procure recovery of the whole or part of the sum he has paid to the creditor. The creditor is not obliged to do anything. If the creditor does nothing and the debtor declines into bankruptcy the mortgaged securities become valueless and if the surety decamps abroad the creditor loses his money. If disaster strikes the debtor and the mortgaged securities but the surety remains capable of repaying the debt then the creditor loses nothing. The surety contracts to pay if the debtor does not pay and the surety is bound by his contract. If the surety, perhaps less indolent or less well protected than the creditor, is worried that the mortgaged securities may decline in value then the surety may request the creditor to sell and if the creditor remains idle then the surety may bustle about, pay off the debt, take over the benefit of the securities and sell them. No creditor could carry on the business of lending if he could become liable to a mortgagee and to a surety or to either of them for a decline in value of mortgaged property, unless the creditor was personally responsible for the decline. Applying the rule as specified by Pollock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. 13.The section talks of only one thing and that is about the liability of the guarantor as being co-extensive as that of the principal debtor. The word co-extensive is an objective for the word 'extent' and it can relate only to the quantum of the principal debt. This question has been dealt with and discussed at length in a Full Bench decision of this court in Su-bramania v. Narayanaswami . That was a case arising out of a reference made by Subba Rao J. (as he then was) on the question whether a non-agriculturist surety would be liable for the entire debt even though the principal debt was scaled down under the provisions of the Tamil Nadu Agriculturists Relief Act. In this decision, reference was made to the well-known principle that a guarantee is not put an end to by reason of the debt becoming unenforceable against the principal by reason of matters happening subsequently, and that a surety is liable though the claim against the principal is barred by the statute of limitation or by reason of the bankruptcy of the principal. No doubt, there is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsolvent is not an action for recovery of the debt, and in this appeal, a determination of this question, is unnecessary. If a suit against the guarantor would lie, we have no doubt that proceedings for adjudging the guarantor as insolvent would equally lie. 61. The Learned Senior Counsel for the 1st Respondent/Bank refers to the decision of the Hon ble Supreme Court in Dena Bank (now Bank of Baroda) V. C. Shivakumar Reddy and others 2021 SCC Online SC 543 (Civil Appeal No.1650 of 2020 decided on 04.08.2021) wherein at paragraph 142 to 143 it is observed as under:- 142. To sum up, in our considered opinion an application under Section 7 of the IBC would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, if there were an acknowledgement of the debt by the Corporate Debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years. 143. Moreover, a judgment and/or decree for money in favour of the Financial Creditor, passed by the DRT, or any other Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the financial creditor to provide additional information required for satisfaction of the Adjudicating Authority with respect to the occurrence of the default. 22. In the instant case, there is no dispute that the date of default is 30.09.2014 and the application under Section 7 of the Code was filed on 25.04.2019. According to the Financial Creditor, Section 18 of the Limitation Act is applicable in view of the Corporate Debtor acknowledging its debt by way of letters, written in and after 2018, giving details of amount repaid, acknowledging the amount outstanding and requesting consideration of one-time settlement proposal. Sub-section (1) of Section 18 of the Limitation Act reads as under: 18. Effect of acknowledgement in writing. (1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgement of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgement was so sig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Punjab National Bank (Company Appeal (AT)(Ins) No.224/2021) wherein at paragraph 17 it is observed as under:- 17. Now keeping in view the different orders passed by the Hon ble Supreme Court while disposing the matter with regard to Asset Reconstruction Company (India) Ltd. vs. Bishal Jaiswal Anr it shows that the pleadings can be brought on record or amended even at the NCLAT stage. 65. The Learned Senior Counsel for the 1st Respondent/Bank submits that Clause 5 of the Corporate Guarantees clearly allow the 1st Respondent/Bank to vary the terms of the loan sanctioned to the Principal Borrower without affecting the liability of the Corporate Debtor . Also Clause 6 of the Guarantee permits the 1st Respondent/Bank to release or forbear to enforce any securities for the loan and such forbearance or release shall not discharge the liability of the Guarantor in any manner. 66. It is pointed out by the Learned Senior Counsel for the 1st Respondent/Bank that as per Clause 7 of the Guarantee , the 1st Respondent/Bank is empowered to forbear or enforce the payment of loan or any interest thereof and the same shall not release the Guarantor and further that the G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Agreements. The Financial Creditor has filed this Application for initiating Corporate Insolvency Resolution Process against the Corporate Debtor based on the failure of the Corporate Debtor to pay the amounts due pursuant in the Guarantee furnished by the Corporate Debtor in favour of the Financial Creditor pursuant to the defaults committed by the Borrower in respect of the Financial Facility granted pursuant to the Facility Agreements. This Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 as amended (the Code) is being filed without prejudice to the rights of the Financial Creditor to submit its claims before the Interim Resolution Professional or the Resolution Professional, as the case may be under the provisions of the Code with respect to any other financial debt granted by the Financial Creditor to the Corporate Debtor or otherwise. 71. In fact, under Part IV of the Application in Serial No.2, the aggregate amount of default under the Facility Agreement as on 01.06.2019 was mentioned as ₹ 60,39,87,991.41 and which includes the defaulted amounts of principal, interest and penal interest and charges. 72. In the Application filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 1st Respondent/Financial Creditor/Bank, inter alia stating that the Corporate Debtor had not taken any Financial Debt from the Financial Creditor and that the 1st Respondent/Financial Creditor had neither sanctioned nor disbursed any Loan , Debt , Money against the consideration for the time value of money. 74. Furthermore, the 1st Respondent/Financial Creditor/Bank had violated the terms of the sanction letter and for this reason the Corporate Guarantee executed on 26.06.2009, 25.02.2010 and 14.01.2013 are illegal, unauthorised and unenforceable one. Apart from this, the Corporate Debtor is not liable to pay to the 1st Respondent/Bank, the purported sum of INR 60,39,87,991.41 or otherwise and as such the Application filed under Section 7 of the Code by the 1st Respondent/Bank is not maintainable. 75. Added further, the Corporate Debtor had taken a stand in its Reply (to the application filed by the 1st Respondent/Financial Creditor) that the 1st Respondent/Financial Creditor/Bank initiated proceedings under SARFAESI Act, 2002, in which the 1st Respondent/Financial Creditor/Bank can recover entire alleged outstanding due. In fact, the 1st Respondent/F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst it on the basis that the Corporate Debtor is only the Guarantor for the Financial Debt provided to the Borrower . Furthermore, it was mentioned in the Reply that the Borrower is continuously paying the money against it liability towards its debt and also the Borrower and the 1st Respondent/Financial Creditor/Bank are working and negotiating the OTS proposal etc. 79. The Corporate Debtor before the Adjudicating Authority had also averred in its Reply that the 1st Respondent/Financial Creditor/Bank instead of moving against any other or all other personal and corporate guarantors, had arbitrarily and without any reason etc. had initiated Corporate Insolvency Proceeding only against it ( Corporate Debtor ) which shows mala fide. INDIAN CONTRACT ACT, 1872 80. Be it noted, that Section 126 of the Indian Contract Act, 1872 deals with Contract of Guarantee , surety , Principal Debtor and Creditor . Section 127 of the Act pertains to Consideration for Guarantee . Section 128 of the Act pertains to Surety s liability . Section 129 of the Act refers to Continuing Guarantee . Section 135 of the Act is concerned with Discharge of Surety when C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Principal Borrower and demanded a sum of ₹ 39,43,32,818.08. Prior to the initiation of the I B Code proceedings, the Bank had taken other proceedings for recovery of the loan sum. 86. The 1st Respondent/Bank had invoked the Corporate Guarantee of the Appellant and other Corporate and Personal Guarantees on 08.12.2014 wherein a sum of ₹ 34,40,08,119.61 was demanded together with further interest w.e.f. 01.12.2014 at the contractual rate, upon the footing of compound interest, until payment/realisation. ISSUANCE OF DEMAND NOTICE 87. The 1st Respondent/Bank on 25.08.2017 issued a Demand Notice to the Appellant/Corporate Guarantor demanding to pay the Financial Debt sum/Loan, whereby and whereunder it is mentioned as follows:- Please refer to letter Ref.No.IDBI/ND/MCG.GINCPL/16-17/795 dated 07.03.2017 issued by IDBI Bank Ltd (hereafter referred to The Bank ), wherein you were advised to arrange for payment of default committed by our assisted company M/s Great India Nautanki Company Pvt Ltd (hereafter referred to the company for which Wizcraft International Entertainment Pvt Ltd (WIEPL) (hereafter referred as The Guarantor ) have pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on hand, the guarantee deeds specifically state that the guarantors agree to pay and satisfy the Bank on demand and interest will be payable by the guarantors only from the date of demand. In a case where the guarantee is payable on demand, as held in Bradford [(1918) 2 KB 833 : 88 LJKB 85 : 119 LT 727 (CA)] and Hartland [ (1863) 1 H C 667 : 7 LT 792] , the limitation begins to run when the demand is made and the guarantor commits breach by not complying with the demand. 12. We will examine the meaning of the words on demand . As noticed above, the High Court was of the view that the words on demand in law have a special meaning and when an agreement states that an amount is payable on demand, it implies that it is always payable, that is payable forthwith and a demand is not a condition precedent for the amount to become payable. The meaning attached to the expression on demand as always payable or payable forthwith without demand is not one of universal application. The said meaning applies only in certain circumstances. The said meaning is normally applied to promissory notes or bills of exchange payable on demand. We may refer to Articles 21 and 22 in this behal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legally due and recoverable from the principal debtor. If the debt had already become time-barred against the principal debtor, the question of creditor demanding payment thereafter, for the first time, against the guarantor would not arise. When the demand is made against the guarantor, if the claim is a live claim (that is, a claim which is not barred) against the principal debtor, limitation in respect of the guarantor will run from the date of such demand and refusal/non-compliance. Where guarantor becomes liable in pursuance of a demand validly made in time, the creditor can sue the guarantor within three years, even if the claim against the principal debtor gets subsequently time-barred. To clarify the above, the following illustration may be useful: Let us say that a creditor makes some advances to a borrower between 10-4-1991 and 1-6-1991 and the repayment thereof is guaranteed by the guarantor undertaking to pay on demand by the creditor, under a continuing guarantee dated 1-4-1991. Let us further say a demand is made by the creditor against the guarantor for payment on 1-3-1993. Though the limitation against the principal debtor may expire on 1-6-1994, as the demand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age 10 at Spl Page 12. An acknowledgement within the meaning of Section 18 of the Limitation Act, 1963 is an acknowledgement of liability existing at the time of acknowledgement and not of its having existed, sometime earlier as per decision Pandit Ram Hazari V. Ram Narain, AIR 1963 All 422 at Page 424. An acknowledgement must be before the prescribed period for a suit or an application in respect of such property or right as per decision Shivam Construction Co V. Vijaya Bank, Ahmedabad, AIR 1997 Guj. 24, at Pages 29, 30. 93. In the Guarantee Agreement executed by the Corporate Debtor / M/s Wizcraft International Entertainment Pvt Ltd (Guarantor) on 26.06.2009 to and in favour of the 1st Respondent/Bank, Clause 3 and 4 reads as under:- 3. In the event of any default on the part of the Borrower in payment/repayment of any of the monies referred to above, or in the event of any default on the part of the Borrower to comply with or perform any of the terms, conditions and covenants contained in the Agreement, Guarantor shall upon demand, forthwith pay to the Bank without demur all the amounts payable by the Borrower, under the Agreement. 4.The Guarantor shall a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 . 100. It is not out of place for this Tribunal to make a pertinent mention that a mere running of the eye of the contents of Reply dated 27.09.2017 of the Corporate Debtor who had executed the Corporate Guarantee on 26.06.2009, 25.02.2010 and 14.01.2013 latently, patently and unerringly points out that the aforesaid Reply Letter of the Corporate Debtor is nothing but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. GUARANTOR S LIABILITY 106. As long as the account is a live account, the Guarantor is liable, because of the fact that the said Account has not been discharged by payment or by other arrangement. 107. 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. DECISIONS ON BANK GUARANTEE 108. In the decision of Hon ble Supreme Court in Ansal Engineering Projects Ltd V Tehri Hydro Development Corporation Ltd and Anoter reported in 1196 5SCC at page 450 wherein at paragraph 4 and 5 it is observed as under:- 4.It is settled law that bank guarantee is an independent and distinct contract between the bank and the beneficiary and is not qualified by the underlying transaction and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk guarantee or a letter of credit is an independent and a separate contract and is absolute in nature, the existence of any dispute between the parties to the contract is not a ground for issuing an order of injunction to restrain enforcement of bank guarantees or letters of credit . 110. In the decision of the Hon ble Supreme Court in Hindustan Construction Co Ltd V State of Bihar Others reported in 2006 (6) SCC 293 wherein it is at paragraph 9 it is observed as under:- What is important, therefore, is that the Bank Guarantee should be in unequivocal terms, unconditional and recite that the amount would be paid without demur or objection and irrespective of any dispute that might have cropped up or might have been pending between the beneficiary under the Bank Guarantee or the person on whose behalf the Guarantee was furnished. The terms of the Bank Guarantee are, therefore, extremely material. Since the Bank Guarantee represents an independent contract between the Bank and the beneficiary, both the parties would be bound by the terms thereof. The invocation, therefore, will have to be in accordance with the terms of the Bank Guarantee; or else, the invocation itself would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id of merit and needs to be rejected. 13 .The Code is a special enactment for resolution of a financial debt and it is in larger public interest that financial debts are recovered and the debts of corporate person are restructured to revive the failing corporate entity. 19. Indubitably a right or cause of action would enure to the lender (financial creditor) to proceed against the principal borrow, as well as the guarantor in equal measure in case they commit default in repayment of the amount of debt acting jointly and severally. It would still be a case of default committed by the guarantor itself, if and when the principal borrower fails to discharge his obligation in respect of amount of debt. For, the obligation of the guarantor is coextensive and coterminous with that of the principal borrower to defray the debit, as predicated in Section 128 of the Contract Act. As a consequence of such default, the status of the guarantor metamorphoses into a debtor or a corporate debtor if it happens to be a corporate person, within the meaning of Section 3(8) of the Code. For, as aforesaid, expression default has also been defined in Section 3(12) of the Code. For, as afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 . 118. Dealing with the plea projected on behalf of the Appellant that the Settlement Agreement between the 1st Respondent/Bank and the Principal Borrower and the No Objection Certificate dated 02.07.2019 granted by the Bank in favour HSVP to re-bid the project land amount to a discharge of the Corporate Debtor s liability under Section 135 and 139 of the Contract Act, 1872, the same is not a valid one in the teeth of Clause 5 to 7 of the Guarantee Agreement dated 25.02.2010 which permits the 1st Respondent/Bank to vary the loan term sanctioned to the Principal Borrower without affecting the Corporate Debtor s liability, the Bank being allowed to release or restrain or to enforce any securities for the loan and further the Bank is entitled to restrain to enforce the payment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bout 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. 122. 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 Liab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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