2025 (1) TMI 227 - AT - IBC

Invocation of personal guarantee - Section 95 application was filed on behalf of Respondent No.1 Bank by a person having valid authority or not. Invocation of personal guarantee - HELD THAT - It is an admitted fact that the Corporate Debtor had not performed its obligation of debt repayment and its account was declared NPA and was later admitted into CIRP. It is a settled position in law that under Section 128 of the Indian Contract Act, 1872 the liability of the surety is coextensive with that of principal debtor unless it is otherwise provided by the contract. The same coextensive liability applies in the case of the personal guarantors. Once the principal borrower fails to discharge the debt, the liability of the personal guarantor gets triggered on the invocation of guarantee. In the present factual matrix, in terms of the PGA, the Appellant as personal guarantor was mandatorily obliged to honour its guarantee keeping in view that PGA provided for an unconditional, irrevocable and continuing guarantee to the COR Security Trustee/COR Lenders in respect of the COR Secured Obligations and credit facilities secured by the principal borrower - It is clear from the reading of the terms of the PGA at Clause 26 that if the Borrower failed to perform its obligations under the COR Finance Documents, it was incumbent on the Personal Guarantor to forthwith pay on demand to the COR Security Trustee/COR Lenders the whole of such outstanding sum. Hence there is no merit in the plea taken by the Appellant that since no request was made by them as guarantor for release of loan in favour of the borrower, the personal guarantee could not have been invoked. The invocation of the personal guarantee and signing of the invocation in the capacity of COR Lenders Agent by Respondent No. 1 Bank has been questioned by the Appellant. It is dissuaded from agreeing with the Appellant since the Respondent No. 1 Bank had signed the CORLA wherein it had been clearly designated as COR Lenders' Agent. Moreover, though the lenders had appointed SBI Cap as their Security Trustee, in the Security Trustee Agreement dated 21.09.2015, Clause 8.12 stated that any duty or the obligation of the Security Trustee may be performed by the COR Lenders and any such performance shall not be construed as a revocation of the trusts or agency created thereby. Section 95 of IBC clearly provides that a Section 95 application can be filed by a creditor in his individual capacity or jointly with other creditors or through a RP. It nowhere lays down any prescription that if the credit facility has been extended by more than one financial creditor, the Section 95 application is required to be filed collectively. Hence, there are no irregularity in the invocation of the personal guarantee by the Respondent No. 1 Bank on these counts either. Section 95 application had been filed without any authority or not - HELD THAT - The Appellant has claimed that the signing power given to any particular officer is not the decision-making power given to any particular officer of State Bank of India. Decisions have to be taken at the board level for initiating any legal proceedings and only thereafter authority is given to any particular officer to sign pleadings. No such authority had been delegated by the Executive Committee of the Central Board to initiate legal proceedings in the present case thereby rendering the Section 95 application not maintainable. The Respondent No.1 has repelled this argument by placing reliance upon a Gazette notification dated 27.03.1987 issued pursuant to Regulation 76 of the State Bank of India General Regulations, 1955 read with Section 50 of the State Bank of India Act, 1955 to contend that the signatory of the application, Shri Nitin Chauhan was duly authorised to file the Section 95 application - the contention of the Appellant that the Section 95 petition was not signed by a validly authorised person is rejected. Conclusion - The Respondent No.1 Bank was entitled to invoke the personal guarantee and that the Section 95 application was validly filed by an authorized person. Appeal dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the Respondent No.1 Bank was entitled to invoke the personal guarantee in the given circumstances.
Whether the Section 95 application was filed by a person with valid authority on behalf of Respondent No.1 Bank.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to Invoke Personal Guarantee

Relevant legal framework and precedents: The judgment refers to the Indian Contract Act, 1872, particularly Section 128, which states that the liability of a surety is co-extensive with that of the principal debtor unless otherwise provided by the contract. The Insolvency and Bankruptcy Code (IBC) provisions are also considered.
Court's interpretation and reasoning: The court analyzed the Personal Guarantee Agreement (PGA) and the Common Loan Agreement (CORLA), emphasizing that the agreements were signed on the same date and were integral to each other. The court noted that the personal guarantor had executed an unconditional and irrevocable guarantee in favor of the Security Trustee for the benefit of the COR Lenders.
Key evidence and findings: The court found that the CORLA and PGA clearly defined the roles and responsibilities of the parties. The Respondent No.1 Bank, as a COR Lender's Agent, was entitled to invoke the guarantee. The court also noted that the personal guarantor's liability was triggered upon the principal borrower's default.
Application of law to facts: The court applied the provisions of the Indian Contract Act, 1872, and the terms of the CORLA and PGA to conclude that the Respondent No.1 Bank was within its rights to invoke the personal guarantee.
Treatment of competing arguments: The appellant argued that the guarantee could only be invoked collectively by the COR Lenders or by the Security Trustee. The court rejected this argument, noting that the CORLA allowed individual COR Lenders to enforce their rights separately.
Conclusions: The court concluded that the Respondent No.1 Bank was entitled to invoke the personal guarantee, as the agreements allowed for such action by individual COR Lenders.

Issue 2: Validity of Authority to File Section 95 Application

Relevant legal framework and precedents: The court considered the State Bank of India Act, 1955, and the State Bank of India General Regulations, 1955, particularly regarding the authority to sign documents and initiate legal proceedings.
Court's interpretation and reasoning: The court referred to a Gazette notification authorizing officers of a certain grade to sign documents on behalf of the bank. It noted that the Assistant General Manager who filed the Section 95 application was duly authorized.
Key evidence and findings: The court found that the application was filed by a person with valid authority, as per the relevant regulations and the Gazette notification.
Application of law to facts: The court applied the statutory framework to determine that the filing of the Section 95 application was valid.
Treatment of competing arguments: The appellant argued that the application was filed without proper authority. The court rejected this argument, citing the Gazette notification and the statutory provisions.
Conclusions: The court concluded that the Section 95 application was validly filed by a person with the requisite authority.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract."
Core principles established: The judgment reinforces the principle that the liability of a personal guarantor is co-extensive with that of the principal debtor, and individual lenders can enforce their rights under the agreements if provided for.
Final determinations on each issue: The court determined that the Respondent No.1 Bank was entitled to invoke the personal guarantee and that the Section 95 application was validly filed by an authorized person.

In conclusion, the court dismissed both appeals, affirming the decision to initiate insolvency proceedings against the appellants. The court found no merit in the arguments presented by the appellants and upheld the validity of the actions taken by the Respondent No.1 Bank.

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