TMI Blog2024 (4) TMI 826X X X X Extracts X X X X X X X X Extracts X X X X ..... any Appeal filed by the Shareholder Cum Investor, before this Appellate Tribunal, came to be dismissed. In the present Appeal on hand, before this Tribunal, although, a plea, is taken by the Appellant, that Corporate Insolvency Resolution Process, cannot be initiated against the Guarantor, if CIRP, against the Principal Borrower, was already initiated by the same Financial Creditor, for the same set of Claim / Default, this Tribunal, unhesitatingly points out that the Liability of the Corporate Debtor / Guarantor, is coextensive and that the Corporate Debtor, having executed a Deed of Guarantee dated 05.07.2016, to and in favour of the 1st Respondent / Bank (Financial Creditor), is bound to act, as per terms and conditions of the Guarantee. In reality, the Corporate Debtor / Guarantor, having not repaid the obligations of the Principal Borrower (M/s. Coastal Energen Private Ltd.) in Law, is deemed to have committed Default. In the instant Appeal, as per Clause 22 of the Deed of Guarantee, dated 05.07.2016, executed by the Corporate Debtor / Corporate Guarantor (Fossil Logistics Private Ltd.) and the SBICAP Trustee Company Ltd., the Respondent / Corporate Debtor (Corporate Guarantor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Division Bench, Chennai, suffers from Legal Infirmity , and that the Adjudicating Authority / Tribunal , has over looked to consider the Judgment of this Tribunal , dated 08.01.2019, in the matter of Dr. Vishnu Kumar Agarwal v. M/s. Piramal Enterprises Ltd. (vide Comp. App (AT) (INS) No. 346 347 / 2018), wherein, it is observed and held that once for a same set of claim(s) an Application under Section 7 filed by a Financial Creditor is admitted against one of the Corporate Debtors be it, the Principal Borrower or a Corporate Guarantor , a second Application, by the very same Financial Creditor , for the very same set of claim(s), cannot be admitted against the other Corporate Debtor be it, the Principal Borrower or the Corporate Debtor , as the case may be. 3. The Learned Counsel for the Appellant, points out that its Logistical Business , in the last nine years, had relatively performed well in the Market , and had a good Turnover , and the same is shown, in Tabular Form , as under : Period Tonnage Handled (in Million Metric Tons) Turn over Amount (Rupees in Crores) 2014-15 1.13 Rs.34.16 2015-16 0.58 Rs.12.09 2016-17 1.76 Rs.100.30 2017-18 1.96 Rs.119.95 2018-19 1.88 Rs.91.91 2019 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the State of Tamilnadu (worth Rs.153,00,00,000/- as on date of this Guarantee). 8. According to the Appellant, the total Sum in Default , as on 20.09.2018 to the 1st Respondent / Bank / Financial Creditor , in the instant case, was Rs.2,932,69,53,916.57, that the Date of Default , was mentioned, in the main CP (IB) / 140 (CHE) / 2022, by the Bank, as 27.09.2018. Further the Accounts were classified as Non-performing Asset , on 31.03.2017. A Recall Notice , was issued on 20.09.2018, to the Coastal Energen Private Ltd. and the Corporate Debtor , herein. 9. The Learned Counsel for the Appellant, brings to the notice of this Tribunal that as per entry at Serial No. 2 in Part IV of Form 1, Filed by the 1st Respondent / Bank / Petitioner (Financial Creditor), before the Adjudicating Authority / Tribunal , in CP (IB) / 140 (CHE) / 2022, the total Amount claimed to be in Default as on 31.08.2021, was Rs.3292,35,84,386/-, together with Interest and other Charges , with effect from 01.09.2021, till its full realisation. 10. According to the Appellant, the aforesaid Sums, in Default , were the Outstanding Amounts , due by Coastal Energen and not by this Corporate Debtor . Further, it is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercise of Discretion . 15. According to the Appellant, the Default , on the part of Coastal Energen , which has led to the filing of this Application , is primarily, because of the Defaults , on the part of TANGEDCO , in releasing Timely Payments , against the power supplied by Coastal Energen and secondarily, because of the delay in sanction of the Loans , by the Consortium of Lenders , which resulted in the exponential rise , in the costs of the Project. 16. The Learned Counsel for the Appellant, takes a stand that with a view to cover the Additional Loan , sanctioned by the Banks , which required a Guarantee , the same was provided by the Respondent / Corporate Debtor . In fact, the said Guarantee , provided by the Respondent / Corporate Debtor , formed the basis, on which, the instant Section 7 Petition, was filed by the Applicant / Financial Creditor , before the Adjudicating Authority / Tribunal . 17. It is the contention of the Appellant, the Adjudicating Authority / Tribunal , had failed to appreciate that the Guarantee , was furnished in favour of SBICAP Security Trustee for the benefit of all the Lenders of Coastal Energen . Therefore, even if the enforcement, of the G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it. 1st Respondent / Bank s Submissions : 22. The Learned Counsel for the 1st Respondent / Bank (Financial Creditor), contends that the Respondent / Corporate Debtor, (as per the Application , filed under Section 7 of the I B Code, 2016), is liable to pay an amount of Rs.3292,35,84,386/- , together with Interest , and other Charges , payable from 01.09.2021, till full realisation (the Statement of Account , indicating the Debt , is at Vol. 5, Page 788 of the Appeal Paper Book ). 23. Furthermore, the Principal Borrower , Viz Coastal Energen Private Ltd , as on December 2022, is liable to pay a total amount of Rs.4,101.28 Crores to the Respondent and a total amount of Rs.11,449 Crores to the Consortium of Lenders . 24. It is represented on behalf of the 1st Respondent / Bank (Financial Creditor), the Principal Borrower s Account ( M/s. Coastal Energen Private Ltd. ), was classified as Non-performing Account , and that the Recall Notice , was issued on 20.09.2018 (vide at Page 226 of Vol II of the Appellant s Paper Book ). 25. It is the stand of the 1st Respondent / Bank (Financial Creditor) that Section 7 Application of the I B Code, 2016, to initiate CIRP , was filed on 17.09.2021, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 against the 'Principal Borrower' as well as the 'Corporate Guarantor(s)' or against both the 'Guarantors'. However, once for same set of claim application under Section 7 filed by the 'Financial Creditor' is admitted against one of the 'Corporate Debtor' ('Principal Borrower' or 'Corporate Guarantor(s)'), second application by the same 'Financial Creditor' for same set of claim and default cannot be admitted against the other 'Corporate Debtor' (the 'Corporate Guarantor(s)' or the 'Principal Borrower'). Further, though there is a provision to file joint application under Section 7 by the 'Financial Creditors', no application can be filed by the 'Financial Creditor' against two or more 'Corporate Debtors' on the ground of joint liability ('Principal Borrower' and one 'Corporate Guarantor', or 'Principal Borrower' or two 'Corporate Guarantors' or one 'Corporate Guarantor' and other 'Corporate Guarantor'), till it is shown that the 'Corporate Debtors' combinedly are joint venture company. 15. The above judgment was de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. The learned Counsel for the Appellant is relying on the above observations of the ILC to argue that the Creditor cannot be restrained from initiating CIRP against both the Principal Borrower as well as the surety and also maintaining the same. The learned Counsel submitted that when remedy is available against both, Application can be maintained against both and only at the stage of disbursement, adjustment may have to be made. 16. We find substance in the arguments being made by the learned Counsel for Appellant which are in tune with the Report of ILC. The ILC in para - 7.5 rightly referred to subsequent Judgement of Edelweiss Asset Reconstruction Company Ltd. v. Sachet Infrastructure Ltd. and Ors. dated 20th September, 2019 which permitted simultaneously initiation of CIRPs against Principal Borrower and its Corporate Guarantors. In that matter Judgment in the matter of Pirmal was relied on but the larger Bench mooted the idea of group Corporate Insolvency Resolution Process in para - 34 of the Judgement. The ILC thus rightly observed that provisions are there in the form of Section 60(2) and (3) and no amendment or legal changes were required at the moment. We are also of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed therein, it could be a debt along with interest, which is disbursed against the consideration for the time value of money and would include the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in Sub clauses (a) to (h) of the same clause. It is so provided in Sub clause (i) of Section 5(8) of the Code to take within its ambit a liability in relation to a guarantee offered by the corporate person as a result of the default committed by the principal borrower. The expression debt has been defined separately in the Code in Section 3(11) to mean a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt. The expression claim would certainly cover the right of the financial creditor to proceed against the corporate person being a guarantor due to the default committed by the principal borrower. The expression claim has been defined in Section 3(6), which means a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured. It also means a right to remedy for breach of contract under any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e court referred to a judgment in Lachhman Joharmal v. Bapu Khandu (1869) 6 Bom HCR 241, in which the Division Bench of the Bombay High Court, held as under (Lachhman case, Bom HCR p. 242): The court is of opinion that a creditor is not bound to exhaust his remedy against the principal debtor before suing the surety and that when a decree is obtained against a surety, it may be enforced in the same manner as a decree for any other debt. 15. This Court, while approving the said judgment, observed that, (Damodar Prasad case (1969) 1 SCR 620, AIR p. 299, para 6); 6. The very object of the guarantee is defeated if the creditor is asked to postpone his remedies against the surety. In the present case the creditor is a banking company. A guarantee is a collateral security usually taken by a banker. The security will become useless if his rights against the surety can be so easily cut down. 18. The term co-extensive has been defined in the celebrated book of Pollock Mulla on Indian Contract and Specific Relief Act, 10th Edition, at page 728 as under: Co-extensive. - Surety's liability is co-extensive with that of the principal debtor. A surety's liability to pay the debt is not re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Guarantee . 36. The Learned Counsel for the 1st Respondent / Bank, adverts to Clause 3 5 of the Deed of Guarantee , dated 05.07.2016, executed by the Guarantor ( Corporate Debtor ), wherein, it is mentioned that the Guarantor , i.e. the Corporate Debtor , shall Indemnify and keep Indemnified , the Secured Party , Viz. the 1st Respondent / Bank, against Losses , Damages , Costs , Claims , and Expenses , whatsoever, which the Secured Parties , would suffer. 37. The clear cut stand of the 1st Respondent / Bank is that the Corporate Debtor , being the Corporate Guarantor , in the instant case, has defaulted in its obligations, under the Corporate Guarantee . Furthermore, the Corporate Debtor / Guarantor , having not repaid / fulfilled the obligations of the Coastal Energen Private Ltd. , is deemed to have committed Default . 38. As a matter of fact, the Form No. CHG 1, dated 11.08.2016 (vide Vol. VI of Appellant s Appeal Paper Book), submitted by the Corporate Debtor , before the Registrar of Companies (pursuant to Section 77, 78, 79 Section 384 r/w. 77, 78, 79 of the Companies Act, 2013 Rule 3 (1) of the Companies (Registration of Charges) Rules, 2014, and the Indenture of the Simple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bal market and economy is explained in detail. 23. It is submitted that one of the major contributing factors for the defaults on the part of the Respondent is that there are receivables to the credit of the Respondent from Tamil Nadu Generation and Distribution Corporation Ltd. (TANGEDCO) to the tune of about Rs.1,050 Crores. Copy of the statement maintained by the Respondent is annexed herein as Annexure 14. 33. It is submitted that a few operational creditors of the Respondent herein had approached this Hon ble Tribunal on occasions and had preferred Applications under Section 9 of the Insolvency and Bankruptcy Code, 2016. It is submitted that the Respondent herein had provided a settlement schedule to the said operational creditors and had duly adhered to the same. 41. The Learned Counsel for the 1st Respondent / Bank, submits that while the exposure of the 1st Respondent / Bank , is more than Rs.4,000 Crores , the exposure of the Financial Creditors , is about Rs.11,000 Crores. Furthermore, the Corporate Insolvency and Resolution Process , is not only beneficial , to the Creditors , at large, but also to the Corporate Debtor , to Revive . In fact, the Appellant has filed the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the corporate person being a guarantor due to the default committed by the principal borrower. The expression claim has been defined in Section 3(6), which means a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured. It also means a right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment in respect of specified matters. 38. In the present case, the NCLT as well as the NCLAT have adverted to the acknowledgments by the principal borrower as well as the corporate guarantor corporate debtor after declaration of NPA from time to time and lastly on 08.12.2018. The fact that acknowledgment within the limitation period was only by the principal borrower and not the guarantor, would not absolve the guarantor of its liability flowing from the letter of guarantee and memorandum of mortgage. The liability of the guarantor being coextensive with the principal borrower under Section 128 of the Contract Act, it triggers the moment principal borrower commits default in paying the acknowledged debt. This is a legal fiction. Such liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te when the Corporate Debtor had failed to discharge its obligation, in terms of Guarantee . and ultimately, the Order , initiating CIRP , against the Guarantor / Corporate Debtor , was upheld. Corporate Debtor : 47. Section 3(8) of the I B Code, 2016, defines Corporate Debtor , meaning a corporate person who owes a debt to any person . Debt : 48. Section 3(11) of the I B Code, 2016, defines Debt , meaning a liability or obligation in respect of a claim, which is due from any person and includes a financial debt and operational debt. Default : 49. Section 3(12) of the Code, defines Default , meaning non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not repaid by the debtor or the corporate debtor, as the case may be . Corporate Guarantor : 50. Section 5-A of the Code , defines corporate guarantor , meaning a corporate person who is the surety in a contract of guarantee to a corporate debtor . Financial Creditor : 51. The term Financial Creditor , is defined under Section 5(7) of the Code , meaning any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity of a Guarantor , is coextensive , with the Liability of the Principal Debtor . In Law , the Creditor , need not necessarily exhaust the remedy available, against the Guarantor , whether the Principal Borrower , pays the Debt or not. Implied Promise : 61. As per Section 145 of the Indian Contract Act, 1872, in every Contract of Guarantee , there is an Implied Promise , by the Principal Debtor , to Indemnify the Surety . 62. Failure by a Guarantor , to pay the Financial Creditor , when the Principal Debt Sum , is demanded, will clearly amount to Default , as per definition Section 3(12) of the I B Code, 2016. 63. A Financial Creditor who has a Guarantee on the Debt Due , can initiate Proceedings , under Section 7 of the Code , against the Guarantor s for failure to Repay the Money Borrowed by a Principal Borrower . No prohibition : 64. There is no Law , which prohibits the Creditor , to proceed, against the Principal Borrower and the Guarantor , independently. There is no two opinion of a prime fact that the Liability of a Guarantor , is coextensive , with the Liability of the Principal Debtor . 65. This Tribunal , has heard the Learned Counsels, appearing for the Parties , and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being the Guarantor , in respect of the Loan , availed by M/s. Coastal Energen Private Limited ( Principal Borrower ), is liable to pay the Due amounts. 71. In the present Appeal on hand, before this Tribunal, although, a plea , is taken by the Appellant , that Corporate Insolvency Resolution Process , cannot be initiated against the Guarantor , if CIRP , against the Principal Borrower , was already initiated by the same Financial Creditor , for the same set of Claim / Default , this Tribunal , unhesitatingly points out that the Liability of the Corporate Debtor / Guarantor , is coextensive and that the Corporate Debtor , having executed a Deed of Guarantee dated 05.07.2016, to and in favour of the 1st Respondent / Bank (Financial Creditor) , is bound to act, as per terms and conditions of the Guarantee . In reality, the Corporate Debtor / Guarantor , having not repaid the obligations of the Principal Borrower ( M/s. Coastal Energen Private Ltd. ) in Law , is deemed to have committed Default . 72. In the instant Appeal , as per Clause 22 of the Deed of Guarantee , dated 05.07.2016, executed by the Corporate Debtor / Corporate Guarantor ( Fossil Logistics Private Ltd. ) and the SBIC ..... X X X X Extracts X X X X X X X X Extracts X X X X
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