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2024 (8) TMI 1109 - AT - Insolvency and BankruptcyAdmission of Section 95 petitions filed by Alchemist Asset Reconstruction Company Limited-Financial Creditor - denial of natural justice to the Appellant by the Adjudicating Authority - invocation of Deed of Guarantee of the PG stood circumscribed by the Put Option Agreement or not - entitlement to object to the Assignment Agreement between RBL/original lender and Respondent No.1. In the facts of the present case, whether there has been denial of natural justice to the Appellant by the Adjudicating Authority? - HELD THAT - The application of principles of natural justice requires to be determined in the background of the facts and circumstances of each case as there is no one-size fits all formula. Having said that, we need to also appreciate the background in which the Adjudicating Authority decided to reserve the matter for orders. It is significant to note that the Adjudicating Authority while reserving the matter for orders observed that the that RP had filed its report under Section 99 of IBC long back and the matter at hand was old - the statutory provisions of IBC under Section 100 provides for only 14 days time to the Adjudicating Authority to adjudicate on the admission or rejection of Section 95 application from the date of submission of the Report of the RP. In view of such stringent timelines provided under the IBC for initiation of Insolvency Resolution Process under Chapter-III of the IBC, prima facie, the Adjudicating Authority cannot be faulted in the given circumstances for having proceeded with reserving the matter for orders after giving the Appellant due liberty to file further written submissions. In view of the time-bound nature of IBC proceedings, there are no infirmity in the endeavour made by the Adjudicating Authority to expedite disposal of the present Section 95 application rather than prolong the matter. The matter remanded back to the Adjudicating Authority would be a time-consuming process and frustrate the time-lines set under IBC. Whether the invocation of Deed of Guarantee of the PG stood circumscribed by the Put Option Agreement? - Whether the Appellant-PG was entitled to object to the Assignment Agreement between RBL/original lender and Respondent No.1? - HELD THAT - No prior consent of PG or any intimation was given to the PG about the Assignment Agreement. Since PG had given guarantee to the original lender/RBL and not to Respondent No 1, therefore, no action can be initiated against the PG. It is also canvassed by the Appellant that the Assignment Agreement was entered into to overcome the ramifications of the Put Option Agreement and aimed at securing an unfair advantage to Respondent No.1 to fabricate claims against the PG. It has been asserted that the Adjudicating Authority has failed to appreciate that the Assignment Agreement was not executed in good faith. The Deed of Guarantee entered between the original lender and PG is an independent, distinct and a special contract which has to be construed on its own terms. The terms of the Deed of Guarantee are therefore extremely material as the invocation of the guarantee had to be purely in accordance with the terms of guarantee. It is clear from the reading of the clauses contained in Deed of Guarantee that guarantee was given by the PG in unequivocal terms and the guarantee amount was to be paid by the guarantors without demur or objection once the guarantee was invoked - In the letter invoking the guarantee, it was clearly stated that the Corporate Debtor had not performed its obligation of debt repayment. It is an admitted fact that the Corporate Debtor did not discharge the debt. It is a settled position in law that under Section 128 of the Indian Contract Act , the liability of the surety is coextensive with that of principal debtor unless it is otherwise provided by the contract. This legal precept has been laid down by the Hon ble Supreme Court in the matter of Maharashtra State Electricity Board, Bombay Vs. Official Liquidator, High Court, Ernakulam and Anr. 1982 (10) TMI 134 - SUPREME COURT . In the present case, once the principal borrower failed to discharge the debt, the liability of the guarantor got triggered on the invocation of guarantee. By virtue of this Deed of Guarantee, the PG was therefore mandatorily obliged to honour its guarantee. The Adjudicating Authority did not commit any error in holding that the right of the Respondent No.1 to recover money from the PG emanates from the terms of the Deed of Guarantee which were not in any manner obliterated, overwhelmed or superseded by the Put Option Agreement with the latter having its own sphere of operation. The liability of the PG was purely dependent on the terms of the Deed of Guarantee which was independent of the Put Option Agreement - Once the Assignment Deed was duly executed and registered, the Respondent No.1 by operation of law was substituted in place of the original lender in all actions for realisation of the debt vis- -vis the Corporate Debtor. The legal position recognising the rights of an Asset Reconstruction Company to act in furtherance of assignment of debt as a valid legal right is no longer res integra. That being so, the borrower or the guarantor has no locus or right to challenge any such assignment. This Bench is of the considered view that the liability of the Appellant as surety being coextensive with that of the principal debtor in terms of the Deed of Guarantee and the Respondent No.1 having stepped into the shoes of the original lender pursuant to the Assignment Deed executed in its favour and Appellant having failed to show that debt of the principal borrower stands extinguished and having failed to honour the guarantee obligation despite invocation of personal guarantee, no error has been committed by the Adjudicating Authority in the impugned order admitting Section 95 application. There is no merit in the Appeal - Appeal dismissed.
Issues Involved:
1. Denial of natural justice to the Appellant. 2. Invocation of Deed of Guarantee circumscribed by the Put Option Agreement. 3. Appellant's right to object to the Assignment Agreement between RBL and Respondent No.1. Issue-wise Detailed Analysis: 1. Denial of Natural Justice to the Appellant: The Appellant contended that the Adjudicating Authority did not provide sufficient opportunity to present its defense due to technical glitches during the virtual hearing. The Adjudicating Authority reserved the matter for orders and directed the Appellant to file written submissions on the same day. The Appellant argued that this curtailment of their right to be heard violated the principles of natural justice. However, the Tribunal noted that the Adjudicating Authority had observed the matter was old and the RP's report had been filed long back. Given the stringent timelines under the IBC, the Tribunal found no infirmity in the Adjudicating Authority's decision to expedite the disposal of the Section 95 application. The Tribunal concluded that there was no violation of natural justice and remanding the matter would frustrate the IBC timelines. The Tribunal provided the Appellant sufficient opportunity to present their case before it. 2. Invocation of Deed of Guarantee Circumscribed by the Put Option Agreement: The Appellant argued that the Financial Creditor was obligated to first exercise rights under the Put Option Agreement before invoking the Deed of Guarantee. The Tribunal examined the Term Loan Agreement, Assignment Agreement, Deed of Guarantee, and Put Option Agreement. The Deed of Guarantee was found to be an independent contract with unconditional and irrevocable terms. The Tribunal held that the invocation of the guarantee was not contingent on the exercise of the Put Option Agreement. The Adjudicating Authority correctly held that the Respondent No.1's right to recover money from the PG emanated from the Deed of Guarantee, which was not superseded by the Put Option Agreement. The liability of the PG was dependent on the Deed of Guarantee, which was independent of the Put Option Agreement. 3. Appellant's Right to Object to the Assignment Agreement: The Appellant contended that the Assignment Agreement between RBL and Respondent No.1 was executed with malafide intentions and without their consent, thus inapplicable to them. The Tribunal examined the Assignment Agreement and relevant clauses of the SARFAESI Act, 2002. The Tribunal found that the Assignment Agreement was valid under Section 5 of the SARFAESI Act, which empowered an Asset Reconstruction Company to acquire financial assets. Once the Assignment Deed was executed, Respondent No.1 stepped into the shoes of the original lender and was entitled to initiate proceedings under Section 95 of the IBC. The Tribunal held that the borrower or guarantor had no locus to challenge the assignment, and the terms of the Deed of Guarantee, which allowed for assignment, were binding on the Appellant-PG. The Tribunal concluded that the Appellant's objection to the Assignment Agreement was unfounded. Additional Issues Raised by the Appellant: The Appellant raised issues regarding incomplete and morphed bank statements, defective Form C, and payments made by Agnus to RBL. The Tribunal noted that the RP had examined various documents and provided the Appellant an opportunity to prove repayment of debt. The RP's report, which recommended admitting the Section 95 application, was found to be thorough and without infirmity. The Adjudicating Authority had also considered the limitation aspect and found the application to be within the period of limitation. The Tribunal dismissed the Appellant's allegations of fraud and defective Form C, stating that allegations of fraud need to be substantiated with strong evidence, which was not done in this case. Conclusion: The Tribunal upheld the Adjudicating Authority's order admitting the Section 95 applications and initiating the Insolvency Process against the Personal Guarantors. The appeals were dismissed with no costs.
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