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2022 (9) TMI 1010 - AT - Insolvency and BankruptcyMaintainability of Insolvency Petition against the Guarantor - novation in a contract of Guarantee - novation made without any reference to the Guarantor Company - discharge of the Guarantor or not - whether the Appellant/Guarantor is liable to pay the amount when the Guarantee was initially invoked on 03.03.2015? - whether the Learned Adjudicating Authority was justified in admitting the Section 7 Application? - time limitation. HELD THAT - The OTS has been signed by the Appellant, Clause 3 of the Deed of Guarantee, and also Clauses 5, 9 10 of the Deed of Guarantee, having invoked the Guarantee on 03.03.2015, the question of invoking the Guarantee again, as per law, does not arise. Addressing the question of Limitation, reliance placed on the Judgement of the Hon ble Supreme Court in Dena Bank (now Bank of Baroda) Vs. C. Shivkumar Reddy Anr., 2021 (8) TMI 315 - SUPREME COURT , in which the Hon ble Supreme Court has clearly laid down that on issuance of a Recovery Certificate, fresh cause of action would arise to initiate proceedings under Section 7 of the Code. Further Clauses 9 10 of the Deed of Guarantee specify that the Guarantee is a continuing one. It a fit case to consider the Recovery Certificate which has been issued by the Hon ble DRT, Mumbai on 25.04.2016 and the second OTS dated 12.03.2018 and the part payment which has been made on 28.03.2018 read together with the warrant of attachment dated 20.06.2019 and the date of filing of the Petition dated 17.03.2022 we observe that the Section 7 Petition is not barred by Limitation. The OTS is not a novation of the original debt but is only to be construed as Terms of Settlement offered and agreed upon by the Borrower to discharge its liability. The Guarantor is a direct beneficiary of the OTS. Having signed and accepted OTS proposal, the Appellant cannot now turn around and take a stand that the liability is not co-extensive or that the Guarantee was invoked only in 2013. This argument is not tenable as it is held that (a) it is a continuing Guarantee and (b) that it is not required for a continuing Guarantee to be invoked twice in these facts of the matter when the liability is co-extensive. Appeal dismissed.
Issues Involved:
1. Whether the Appellant/Guarantor is liable to pay the amount when the Guarantee was initially invoked on 03.03.2015. 2. Whether the Learned Adjudicating Authority was justified in admitting the Section 7 Application. 3. Whether the claim is barred by Limitation. Detailed Analysis: 1. Liability of the Appellant/Guarantor: The Appellant/Guarantor argued that the subject assigned loan is a Post-Settlement Loan without any reference to the Guarantor Company and thus, subject to the Terms of Settlement arrived in 2018, which the Guarantor Company was never a party to. The Appellant contended that a novation without reference to the Guarantor Company discharged the Guarantor from liability, making the Insolvency Petition against the Guarantor non-maintainable. However, the Tribunal noted that the Guarantee was invoked on 03.03.2015 under Section 13(2) of the SARFAESI Act, 2002, and the Appellant/Corporate Guarantor agreed to the consent terms, evidenced by the consent Order dated 14.02.2015 passed by the Hon'ble DRT Mumbai. The Tribunal emphasized that the Guarantee was a continuing one as per Clauses 9 and 10 of the Deed of Guarantee, making the liability of the Guarantor co-extensive with that of the Principal Borrower under Section 128 of the Indian Contract Act, 1872. 2. Justification of Admitting Section 7 Application: The Tribunal found that the Guarantee had been invoked on 03.03.2015, and the Assignor Bank filed MA 17/2015 before the DRT for issuance of a Recovery Certificate, which was passed on 02.12.2015. The second consent terms/One-Time Settlement (OTS) offered by the Borrower and accepted by the Assignor Bank on 21.03.2018 did not exclude the Corporate Guarantor from liability. The Tribunal highlighted that the OTS was signed by the Appellant, who was the Managing Director and Promoter of the Corporate Debtor, Promoter and Director of the Principal Borrower, and a Personal Guarantor. Thus, the Tribunal held that the Section 7 Application was rightly admitted by the Learned Adjudicating Authority. 3. Claim Barred by Limitation: The Appellant argued that the claim was barred by Limitation as the default arose from the 2018 Settlement, to which the Appellant was not a party. The Tribunal, however, noted that the Guarantee was invoked on 03.03.2015, and the Recovery Certificate was issued on 25.04.2016. The Tribunal placed reliance on the judgment of the Hon'ble Supreme Court in 'Dena Bank (now Bank of Baroda) Vs. C. Shivkumar Reddy & Anr.' (2021) 10 SCC 330, which established that the issuance of a Recovery Certificate gives a fresh cause of action to initiate proceedings under Section 7 of the Code. The Tribunal also considered the part payment made on 28.03.2018 and the warrant of attachment dated 20.06.2019, concluding that the Section 7 Petition filed on 17.03.2022 was not barred by Limitation. Conclusion: The Tribunal dismissed the appeal, holding that the Guarantee was a continuing one, the liability of the Guarantor was co-extensive with that of the Principal Borrower, and the Section 7 Petition was not barred by Limitation. The Tribunal emphasized that the OTS was not a novation of the original debt but merely terms of settlement offered and agreed upon by the Borrower to discharge its liability. The Appellant, having signed and accepted the OTS proposal, could not now argue that the liability was not co-extensive or that the Guarantee was invoked only in 2013.
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