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2023 (4) TMI 1081 - AT - Insolvency and BankruptcyAdmitting Section 7 application - Initiation of CIRP - default in payment of guaranteed amount by the Corporate Debtor - Whether application filed under section 7 by the Bank being barred by time ought not to have been admitted? - time limitation. Whether default in payment of guaranteed amount by the Corporate Debtor is the same default as is committed by the Principal Borrower and the period of limitation for both the Principal Borrower and the Corporate Guarantor shall be same for the purposes of filing Section 7 application for the Bank? - Whether in the facts of the present case, the application filed by the Bank on 17.03.2020 was barred by limitation against the Corporate Guarantor? - Whether the order of the Adjudicating Authority admitting Section 7 application is unsustainable? HELD THAT - The scheme of I B Code clearly indicate that both the Principal Borrower and the Guarantor become liable to pay the amount when the default is committed. When default is committed by the Principal Borrower the amount becomes due not only against the Principal Borrower but also against the Corporate Guarantor, which is the scheme of the I B Code. When we read with as is delineated by Section 3(11) of the Code, debt becomes due both on Principal Borrower and the Guarantor, as noted above. The definition of default under Section 3(12) in addition to expression due occurring in Section 3(11) uses two additional expressions i.e payable and is not paid by the debtor or corporate debtor - It is well settled that the loan agreement with the Principal Borrower and the Bank as well as Deed of Guarantee between the Bank and the Guarantor are two different transactions and the Guarantor s liability has to be read from the Deed of Guarantee. Although the Guarantor immediately become liable on any default committed by the Principal Borrower but for initiating any action against the Guarantor, a demand is to be made. Without there being any demand to the Guarantor, it cannot be accepted that period of limitation against the Guarantor shall commence. In the present case, Section 7 application filed by the Bank has been brought on the record as Annexure A-49. When we look into the Part IV of the application, the date of NPA i.e. 31.03.2017 has been mentioned in Part IV and total amount in default as on 31.12.2019 has been computed. The Application under Section 7 thus proceeds on date of NPA - default on the part of the Guarantor cannot be treated to be on 31.12.2016, when the Principal Borrower committed Default. It is also relevant to notice that the Corporate Debtor did not file any reply in Section 7 application despite giving opportunity by the Adjudicating Authority and right to reply was also forfeited - In the facts of the present case, where the Corporate Debtor did not file any reply and also did not file application for recall of order dated 23.11.2021 forfeiting right to file reply, the Adjudicating Authority did not commit any error in admitting Section 7 application. The application filed by the Bank on 17.03.2020 was not barred by limitation - The order of the Adjudicating Authority admitting Section 7 application is sustainable. Appeal dismissed.
Issues Involved:
1. Whether default in payment of the guaranteed amount by the Corporate Debtor is the same default as committed by the Principal Borrower and if the period of limitation for both shall be the same for filing Section 7 application. 2. Whether the application filed by the Bank on 17.03.2020 was barred by limitation against the Corporate Guarantor. 3. Whether the order of the Adjudicating Authority admitting Section 7 application is unsustainable. Issue-wise Comprehensive Details: Issue No. I: The Tribunal examined the statutory scheme under the I&B Code regarding limitation when an application under Section 7 is filed against a Corporate Person. Article 137 of the Limitation Act, 1963 is applicable, which states that the period begins to run "when the right to apply accrues." Section 7(1) of the Code allows a Financial Creditor to file an application for initiating CIRP against the Corporate Debtor "when the default has occurred."¯ The Tribunal noted that the liability of the Surety (Corporate Guarantor) is co-extensive with that of the Principal Debtor under Section 128 of the Indian Contract Act, 1872. The Tribunal referred to several judgments, including "Margaret Lalita Samuel vs. Indo Commercial Bank Ltd.,"¯ which established that limitation would run from the date of breach. The Tribunal concluded that the default by the Corporate Guarantor cannot be treated as occurring on the same date as the Principal Borrower's default, as the terms of the Deed of Guarantee must be considered. The Tribunal found that the demand notice dated 03.04.2017 issued by the Bank to the Corporate Guarantor triggered the default for the Guarantor. Issue No. II: The Tribunal examined whether the application filed by the Bank on 17.03.2020 was barred by limitation. The Tribunal noted that the date of NPA was 31.03.2017, and the notice to the Corporate Guarantor was issued on 03.04.2017, asking for payment within 60 days. The Tribunal concluded that the default on the part of the Corporate Guarantor cannot be treated as occurring on 31.12.2016. The Tribunal found that the application filed by the Bank on 17.03.2020 was within the limitation period, considering the demand notice and the subsequent default by the Corporate Guarantor. Issue No. III: The Tribunal addressed whether the order of the Adjudicating Authority admitting the Section 7 application was unsustainable. The Tribunal noted that the Corporate Debtor did not file any reply in the Section 7 application and did not dispute the disbursement of Rs.25 Crores. The Tribunal found that the Adjudicating Authority did not commit any error in admitting the Section 7 application. The Tribunal also considered the argument that the Adjudicating Authority should have exercised its discretion in not admitting the application based on the Supreme Court's judgment in "Vidarbha Industries Power Ltd. vs. Axis Bank Ltd."¯ The Tribunal concluded that the application filed by the Bank under Section 7 was not barred by time and upheld the order of the Adjudicating Authority. Conclusion: The Tribunal dismissed the appeal, allowing one month for the Appellant to negotiate a settlement with the Financial Creditor before the Committee of Creditors is constituted. If no settlement occurs within one month, the IRP may proceed to constitute the Committee of Creditors and continue in accordance with the law.
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