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2017 (7) TMI 110 - Tri - Insolvency and BankruptcyPetition under Section 7 of The Insolvency and Bankruptcy Code, 2016 - Held that - The Guarantee is a continuing Guarantee. There was a demand for payment on 10.10.2012 itself. There was a refusal on the part of the Respondent by revocation of Guarantee on 30th March, 2010 and by giving Reply on 1.11.2012. Therefore, period of limitation starts running either from 30th March, 2010 or from 1.11.2012, but not from 27.2.2017 as stated in the Written Arguments of the learned counsel for the Petitioner. Looking to the facts of this case, Petitioner Bank having kept quiet for 2 years without initiating any proceeding against Respondent after the revocation of the Guarantee Agreement, on the verge of limitation, filed OA No. 242/2013 against the Respondent Company. Thereafter, Petitioner Bank remained silent till notice was issued on 13.2.2017 with a view to trigger Insolvency Resolution Process. Even at the cost of repetition, it may be stated that the Petitioner Bank already made a claim before the Liquidator appointed in the winding up proceedings against the Principal Borrower. Of course, that may not be a ground for the Bank not to proceed against the Guarantor if Guarantee is enforceable. But the intermittent actions that are being taken up by the Petitioner Bank shows that it chose to have a chance remedy under the Code by suppressing the material facts including the revocation of Guarantee Agreement dated 14.1.2008. The incomplete record placed by the Petitioner Bank amounts to misleading also. Coming to suppression of material facts, except the Petitioner s saying that proceedings before DRT are pending, it did not choose to file any papers relating to the proceedings before DRT. Petitioner totally suppressed the Suit filed by the Respondent before the High Court of Colombo. Petitioner having knowledge about revocation of Bank Guarantee, did not disclose about the same. Inspite of direction given by this Authority on 17.5.2017 to parties, Petitioner not filed documents relating to proceeding before DRT. Petitioner shall file the copies of Entries in Bankers Book in accordance with the Bankers Books Evidence Act. In these set of facts, and in the light of controversy on limitation aspect and in view of bona fide substantial pleas raised by Respondent as long back in 2010, 2011 and 2013 in earlier proceedings, it is not just to record satisfaction of the authority regarding existence of default or occurrence of default in respect of liability, if any, and obligations, if any, that may or may not arise under the Guarantee Agreement dated 14.1.2008 determined on 30.3.2010. This Adjudicating Authority is of the view that there is no occurrence of default. This petition is rejected.
Issues Involved:
1. Jurisdiction and applicability of the Insolvency and Bankruptcy Code, 2016 (IBC). 2. Definition and determination of "Financial Creditor" and "Financial Debt." 3. Validity and enforceability of the Corporate Guarantee. 4. Limitation and the period of limitation for initiating insolvency proceedings. 5. Ascertainment of default and occurrence of default. 6. Impact of pending legal proceedings in other jurisdictions. Issue-wise Detailed Analysis: 1. Jurisdiction and Applicability of the Insolvency and Bankruptcy Code, 2016 (IBC): The Petitioner Bank filed the petition under Section 7 of the IBC, seeking reliefs under Sections 7(5)(a) and 13 of the Code. The Respondent contended that the matter is sub judice and pending in the Debt Recovery Tribunal (DRT), Mumbai, and also in the High Court of Western Province Holden in Colombo. The Tribunal noted that the pendency of proceedings in other forums is no bar for initiating proceedings under the IBC unless there is an express provision in other enactments overriding the IBC. 2. Definition and Determination of "Financial Creditor" and "Financial Debt": The Tribunal examined whether the Petitioner Bank qualifies as a "Financial Creditor" under Section 5(7) of the IBC and whether the debt in question qualifies as a "Financial Debt" under Section 5(8). The Tribunal concluded that the amount lent to the Principal Borrower, for which the Respondent Company stood as a Guarantor, amounts to "financial debt," making the Petitioner Bank a "Financial Creditor." 3. Validity and Enforceability of the Corporate Guarantee: The Respondent argued that the Corporate Guarantee was terminated by a letter dated 30th March 2010, which was acknowledged by the Petitioner Bank. The Tribunal noted that the Petitioner Bank did not mention the termination in its subsequent legal notices and concluded that the cause of action, if any, arose either on the day of the revocation of the Guarantee or at least on 1st November 2012 when the Respondent replied to the Bank's notice. The Tribunal found that the Respondent's defense regarding the termination of the Guarantee was bona fide and substantial. 4. Limitation and the Period of Limitation for Initiating Insolvency Proceedings: The Tribunal discussed the applicability of the Limitation Act, 1963, to proceedings under the IBC. It noted that while no specific limitation period is provided under the IBC, Section 433 of the Companies Act, 2013, makes the Limitation Act applicable to proceedings before the Tribunal. The Tribunal concluded that the period of limitation started running either from the date of revocation of the Guarantee (30th March 2010) or from the date of the Respondent's reply (1st November 2012). Therefore, the petition filed on 8th May 2017 was barred by limitation. 5. Ascertainment of Default and Occurrence of Default: The Tribunal emphasized the importance of ascertaining the existence and occurrence of default under Section 7 of the IBC. It noted that the Petitioner Bank had not provided sufficient evidence to establish the occurrence of default, especially considering the bona fide disputes raised by the Respondent in earlier proceedings. The Tribunal found that the Respondent's defenses were substantial and likely to succeed in law. 6. Impact of Pending Legal Proceedings in Other Jurisdictions: The Tribunal considered the impact of the pending suit in the High Court of Western Province Holden in Colombo, where the Respondent sought declarations regarding the validity and enforceability of the Corporate Guarantee. The Tribunal noted that an order of moratorium under Section 13 of the IBC would not be binding on the High Court of Colombo, potentially leading to conflicting judgments. Therefore, the Tribunal concluded that the pending proceedings in Colombo had a bearing on the petition. Conclusion: The Tribunal rejected the petition, concluding that there was no occurrence of default and that the petition was barred by limitation. The Tribunal emphasized that any opinion or finding in this order is not binding on the recovery proceedings pending before the DRT or the High Court of Western Province Holden in Colombo.
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