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TMI Blog2022 (2) TMI 966X X X X Extracts X X X X X X X X Extracts X X X X ..... al finds force in the contention of the Learned Counsel for the Respondent that the withdrawal of the proceedings was brought to the notice of the Adjudicating Authority as the Order copies are part of the record before the Learned Adjudicating Authority. It is not in dispute that the Principal Borrower had committed default in repayment of the outstanding Financial Debt and the Tripartite Guarantee Agreement executed by the Appellant/Corporate Debtor in favour of the Respondent evidences the liability of the Appellant herein to pay the amounts due and payable - A Perusal of the Sanction Letters to the Principal Borrowers establishes that the credit facilities was executed towards meeting working capital requirements and it cannot be said that Respondent/Lender has only a security interest towards the Corporate Debtor. At the cost of repetition, the Appellant herein stood as a Guarantor and stepped into the shoes of the Principal Debtor and viewed from any angle it cannot be construed that Lender has only a security interest over the assets of the Corporate Debtor. This Tribunal comes to an irresistible and inescapable conclusion that the Appellant being the Corporate Guaran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he application is liable to be rejected. 13. From the facts, it is seen that the applicant falls within the definition of Financial Creditor. The material placed on record further confirms that FC had disbursed loan facilities to the principal borrowers in respect of which guarantees were issued by the CD. The principal borrowers had committed default in repayment of the outstanding financial debt. The FC has placed on record the guarantee agreement (tripartite agreement) executed by CD in favour of FC. 14. We are satisfied that the present application in complete in all respects and the FC is entitled to claim outstanding financial debts from the CD and that there has been default in payment of the financial debt. Consent of the IRP is enclosed with Petition. The defaulted amount is more than ₹ 1,00,000, being the minimum threshold limit fixed by the Code. Under such circumstances, this Adjudicating Authority is inclined to admit this petition and initiate CIRP against the respondent. Accordingly, this petition is admitted. 2. Submissions of Appellant: The Impugned Order dated 15.04.2021 has been passed ex-parte without issuing due notice and providing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Section 5(8) of the Code; and hence, the respondent-lenders, the mortgagees, are not the financial creditors of the corporate debtor JIL. Though Guarantee Agreements were executed, other documents such as the Memorandum of Deposit of Title Deeds and Letter of Continuity dated 27.06.2013 evidencing creation of equitable mortgage need to be considered to understand the true nature of the transaction. The Title Deeds of the property of the Corporate Debtor were deposited with the Respondent in order to secure the repayment of the amounts due to the Respondent from M/s. Roshni Jewellers Pvt. Ltd. M/s. J.B. Gold Pvt. Ltd. and hence the Lender falls in the category of Indirect Secured Creditor in whose security interest has been created by way of mortgage of asset of the Corporate Debtor. It is vehemently contended by the Learned Counsel for the Appellant that Respondent had initiated CIRP against M/s J. B. Gold Pvt. Ltd. in CP(IB) No. 1386(PB)/2019 and M/s. Roshni Jewellers Pvt. Ltd. in CP(IB) N. 1370 (PB)/2019. The Adjudicating Authority has allowed the Section 12A Applications filed by the Respondent herein and disposed of the matters as withdrawn. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the loan and security documents executed by the Principal Borrowers M/s. Roshni Jewellers Pvt. Ltd. M/s. J. B. Gold Pvt. Ltd. It is also not denied that the Petitions under Section 7 of the Code filed against the aforenoted Two Principal Borrowers were withdrawn. Learned Counsel vehemently argued that the said Petitions were withdrawn only because the Companies were non-operational and there existed no assets and any continuation of CIRP would only lead to additional liabilities in terms of costs incurred. The Judgment of Anuj Jain (supra) is not applicable to the facts of this case as liability of the Guarantor is co-extensive, with that of the Principal Borrower . The Principal Borrower acknowledged its liability by agreeing to a One Time Settlement dated 01.09.2020 , which was rejected by the Bank vide a letter dated 06.10.2020. There exists a Guarantee Agreement whereby the Promisor becomes a surety as referred to in Sections 126, 127 and 128 of the Contract Act, 1872. Mr. Abhishek Anand and Mr. Prateek Kushwaha appearing for the Resolution Professional (RP) stated that he is only a proforma party and no relief has been prayed for against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Company of JIL . The Resolution Professional (RP) rejected the claim of the lenders of JAL as Financial Creditors of JIL , which decision was challenged. The Adjudicating Authority agreed with the Resolution Professional. This Tribunal allowed the Appeal. The Hon ble Supreme Court has set aside the Order of this Tribunal observing that the debts in question are in the form of third party security, given by JIL so as to secure the loans obtained by JAL from the said lenders and hence cannot be covered under the expression Financial Debt as defined under the Code. 8. In the instant case, on 25.06.2013, the Respondent/Lender had sanctioned to the Principal Borrower M/s. Roshni Jewellers Pvt. Ltd. an aggregate sum of ₹ 9 Crores towards overdraft facility and another amount of ₹ 9 Crores to the Principal Borrower M/s. J.B. Gold Pvt. Ltd . The Appellant herein M/s. DMC Infrastructure Pvt. Ltd. had executed the Guarantee Agreement dated 27.06.2013 to secure the facilities sanctioned by the Respondent/Lender. For better understanding of the case, the relevant portion of one such Guarantee Agreement dated 27.06.2013 entered into between M/s. Ros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the Borrower or promising to give the Borrower time or not to sue him and the Bank s parting with any security the Bank may hold for the guaranteed debt. The Guarantor also agrees that the Guarantor shall not be discharged from his liability by the Bank s releasing the Borrower or by any act or omission of the Bank the legal consequences of which may be to discharge the Borrower or by any act which would but for this present provision, be inconsistent with the guarantor s rights as surety or by the Bank s omission to do any act which, but for the present provisions the Bank s duty to the Guarantor would have required the Bank to do. Though as between the Borrower and the Guarantor, the Guarantor, is the surety only, the Guarantor agrees that as between the Bank and the Guarantor, the Guarantor is the principal debtor jointly with the Borrower and accordingly the Guarantor shall not be entitled to any of the rights conferred as surety by sections 133, 134, 135, 139 and 141 of the Indian Contract Act, 1872 or any other provisions of law for the time being in force. (Emphasis Supplied) As per the aforenoted terms and agreements, the Guarantor agrees that as between t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not have a right to dictate terms to the creditor as to how he should make the recovery and pursue his remedies against the principal debtor at his instance . Thus, we are of the view that in the present case the guarantor cannot escape from her liability as a guarantor for the debt taken by the principal debtor. In the loan agreement, which is the contract before us, there is no clause which shows that the liability of the guarantor is not co-extensive with the principal debtor. Therefore Section 128 of the Indian Contract Act will apply here without any exception. 10. This Appellate Tribunal in Mr. Sabbas Winifred Joseph Vs. IDBI Bank Limited Anr., Company Appeal (AT) Ins. No. 411 of 2021 had expressively discussed Section 126 of the Indian Contract Act, 1872 and the liability of the Principal Borrower and Guarantor and observed as under: INDIAN CONTRACT ACT, 1872 80. Be it noted, that Section 126 of the Indian Contract Act, 1872 deals with Contract of Guarantee , surety , Principal Debtor and Creditor . Section 127 of the Act pertains to Consideration for Guarantee . Section 128 of the Act pertains to Surety s liability . Section 129 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Corporate Debtor. According to the Financial Creditor, the liability of the Principal Borrower and of the Guarantor is coextensive or coterminous, as predicated in Section 128 of the Indian Contract Act, 1872. This legal position is well-established by now (see- Bank of Bihar Ltd Vs. Dr Damodar Prasad Anr). Section 7 of the Code enables the financial creditor to initiate CIRP against the principal borrower if it is a corporate person, including against the corporate person being a guarantor in respect of loans obtained by an entity not being a corporate person. The Financial Creditor besides placing reliance on Section 7, would also rely on definition of expressions corporate debtor in Section 3(8), debt in Section 3(11), and financial creditor in Section 5(7) and financial debt in Section 5(8) of the Code. It is urged that upon conjoint reading of these provisions, it is crystal clear that a financial debt includes the amount of any liability in respect of any guarantee or indemnity for any money borrowed against interest. Resultantly, the money borrowed against interest. Resultantly the money borrowed by sole proprietorship of the appellant against payment of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at his instance. APPELLATE TRIBUNAL DECISION: 114. In the judgment of this Tribunal in Ferro Alloys Corporation Ltd V. Rural Electrification Corporation Ltd. (vide Comp. App. (AT)(Ins) 921/2017, it is held that the Insolvency proceedings against the Corporate Debtor may be undertaken without initiating prior proceedings gains the Principal Debtor under I B Code. In fact, requiring/asking the Financial Creditor / Operational Creditor to postpone in availing its remedy against the Corporate Debtor will undoubtedly defeat the purpose of obtaining Guarantee as that would result in restricting the rights of a Creditor . 115. The Financial Creditor has the option of commencing the Insolvency proceeding against the Corporate Grantor only without even resorting to any legal proceeding against the Corporate Debtor . (Emphasis Supplied) 11. The Guarantee Agreement executed between the parties is clear with respect to the liability of the Appellant herein that the Guarantor/Appellant is the Principal Debtor jointly with the Borrower. Under Section 128 of the Indian Contract Act, 1872, the liability of Surety towards a Creditor is coex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Counsel for the Respondent that the withdrawal of the proceedings was brought to the notice of the Adjudicating Authority as the Order copies are part of the record before the Learned Adjudicating Authority. 14. It is also the case of the Respondent/Lender that the Section 7 Applications under IBC against the Principal Borrowers were withdrawn only on account of the fact that there was not a single Asset in the name of the Corporate Debtor and continuing the CIRP would only amount additional costs. It is not in dispute that the Principal Borrower had committed default in repayment of the outstanding Financial Debt and the Tripartite Guarantee Agreement executed by the Appellant/Corporate Debtor in favour of the Respondent evidences the liability of the Appellant herein to pay the amounts due and payable . 15. The Appellant further created Security Interest on the asset of the Corporate Debtor namely, EMG/First charge on the permanent Cinema Structure (Knows as Filmistan Cinema) on Free hold plot of Land Measuring 2115 sq. yds. Bearing Municipal no 8356, situated at Model Basti, Bara Hindu Rao, Delhi 110007 . A Perusal of the Sanction Letters to the Princip ..... X X X X Extracts X X X X X X X X Extracts X X X X
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