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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 ..... s follows: "10. In the present matter, CD has signed deeds of guarantee in favour of FC for the CD facilities sanctioned to the two principal borrowers. In terms of the aforementioned provisions of the Code, FC is clearly a financial creditor to the CD having legally recoverable financial debt. 11. At this stage, we reproduce below the provisions of Section 7(5) of the Code: "where the Adjudicating Authority is satisfied that-- (a) a default has occurred and the application under sub-section (2) is complete, and there are no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application; or (b) default has not occurred or the application under sub-section (2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application:" 12. If it is established that default has occurred and no disciplinary proceeding is pending against the IRP and application is complete, the Adjudicating Authority (AA) has no option but to admit the application; if any of the conditions is lacking, the application is liable to be rejected. 13. From the facts, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of the corporate debtor; who is involved right from the beginning while assessing the viability of the corporate debtor; who would engage in restructuring of the loan as well as in reorganisation of the corporate debtor's business when there is financial stress...... Role of a person having only security interest over the assets of the corporate debtor could easily be contrasted with the role of a financial creditor because the former shall have only the interest of realising the value of its security while the latter would,......would also....be interested in rejuvenation, revival and growth of the corporate debtor.......it is clear that if...... a person having only security interest over the assets of the corporate debtor is also included as a financial creditor.......the growth and revival of the corporate debtor may be the casualty. ......Indisputably, the debts in question are in the form of third-party security said to have been given by the corporate debtor JIL so as to secure the loans/advances/facilities obtained by JAL from the respondent-lenders. Such a 'debt' is not a 'financial debt' within the meaning of Section 5(8) of the Code; and hence, the respondent-lenders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion that when the Plaintiff withdraws any suit, the Plaintiff shall be precluded from instituting any fresh suit in respect of the same subject matter and that the Impugned Order is sub silentio on this aspect. 3. Submissions of Respondents: Learned Counsel for the Respondent submitted that 'Service' made was by way of an email which is the registered Email of the Company on the Company Master Data. An email was also sent to the Email ID of the Appellant herein who is also a Director of the Company. It is submitted that the Registry served notice vide an email dated 23.09.2020 on anandjainca@rediffmail.com and on inderjeetbansal1969@yahoo.com which ID is reflected in the MCA record. A WhatsApp message was also served to Mr. Rajnish Gupta who is the Appellant herein. The Respondent served a copy of the Section 7 Application informing the Appellant of the pending litigation vide an email dated 08.10.2020 and hence it cannot be said that the 'Appellant' was not served in accordance with the law. Learned Counsel vehemently contended that the Respondent Bank is a 'Secured Financial Creditor' as is evident from the loan and security documents executed by the Principal Borrowers M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Company Master Data shows that the Respondent had served on the registered Email ID appearing on the Company Master Data and hence, we are of the considered view that the service by Email on the registered Email ID and also on the Email ID of the Appellant herein is held sufficient in the eyes of law. Hence, this Tribunal does not find any illegality in the observations of the Ld. Adjudicating Authority in setting the 'Appellant' Ex-parte on account of non-appearance on 09.10.2020, 05.11.2020 and on 26.11.2020 on which date it was set Ex-parte. 7. Adverting to the contention of the Learned Counsel for the Appellant that the amount claimed to be 'due and payable' cannot partake the character of a 'Financial Creditor' within the meaning of Section 5(8) of the Code, as the ratio of 'Anuj Jain' (supra) is squarely applicable to the facts of this case. In the afore-noted decision in 'Anuj Jain (Supra)', Jaypee Infratech Limited ('JIL') had mortgaged properties as collateral securities for the loans and advances made by the Bankers to Jaiprakash Associates Limited ('JAL'), the Holding Company of 'JIL'. The Resolution Professional (RP) rejected the claim of the lenders of 'JAL' a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of credit, Bank Guarantees, Cheques. Hundies, Bills, Notes, Drafts and other negotiable instruments drawn, accepted endorsed or guaranteed by the Borrower and in respect of interest at the rate agreed upon with monthly/quarterly/half yearly/annual rests, commission and bank charges and in respect of all costs, charges and expenses with the Bank may incur in paying any rent, rates, taxes, duties, calls, instalments, legal and other professional charges or other outgoings whether for the insurance, repair, maintenance, management, realisation or otherwise in respect of any property movable or immovable or any chattles or actionable claims or scrip securities or title deeds pledged, mortgaged or assigned or ...with the Bank as security for the due payment and discharge of the Borrower liability to the Bank. ...... The Guarantor hereby consents to the Bank making any variance that the Bank may think fit in the terms of the Bank's contract with the Borrower to the Bank's determining, enlarging or varying any credit to the Borrower, to the Bank making any composition with the Borrower or promising to give the Borrower time or not to sue him and the Bank's parting with any security ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tent of the legislature. In Ram Kishun and Ors. v. State of U.P. and Ors., (2012) 11 SCC 511, this Court has held that "in view of the provisions of Section 128 of the Contract Act, the liability of the guarantor/surety is co-extensive with that of the debtor." The only exception to the nature of the liability of the guarantor is provided in the Section itself, which is only if it stated explicitly to be otherwise in the Contract. 14. In the case of Ram Kishun (supra), this Court has also stated that it is the prerogative of the Creditor alone whether he would move against the principal debtor first or the surety, to realize the loan amount. This Court observed: "10.....Therefore, the creditor has a right to obtain a decree against the surety and the principal debtor. The surety has no right to restrain execution of the decree against him until the creditor has exhausted his remedy against the principal debtor for the reason that it is the business of the surety/guarantor to see whether the principal debtor has paid or not. The surety does 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l' and the 'Guarantor'. Failure by the 'Guarantor' to pay the 'Financial Creditor' when the 'Principal Debt' amount is demanded will amount to a 'Default' as per Section 3(12) of the Code. A Financial Creditor who has a 'Guarantee' on the debt due can initiate proceedings under Section 7 of the I&B Code, 2016 against the 'Guarantor' for failure to repay the amount borrowed by the 'Principal Borrower'. .......... 111. No absolvement of surety Even if a discharge, a Principal Debtor gets by operation of law in Bankruptcy or in Liquidation proceeds in respect of a Company, the same does not absolve the surety of its liability in the considered of this 'Tribunal'. HON'BLE SUPREME COURT DECISION 112. In the Judgement of Hon'ble Supreme Court dated 26.03.2021 in Laxmipat Surana V. Union of India (vide Civil Appeal No.2734 of 2020) wherein at paragraph 12 and 13 it is observed as under:- 12. "The Finance Creditor has refused the plea regarding maintainability of the application against the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l borrower to defray the debit, as predicated in Section 128 of the Contract Act. As a consequence of such default, the status of the guarantor metamorphoses into a debtor or a corporate debtor if it happens to be a corporate person, within the meaning of Section 3(8) of the Code. For, as aforesaid, expression "default" has also been defined in Section 3(12) of the Code. For, as aforesaid, express "default" has also been defined in Section 3(12) of the Code to mean nonpayment of debt when whose or any part or instalment of the amount of debt has become due or payable and is not paid by the debtor or the corporate debtor, as the case may be." (Emphasis Supplied) CIRP INITIATION 113. A 'Financial Creditor' is entitled to initiate 'CIRP' against a 'Guarantor' or 'Surety' although the Creditor holds enough security over the assets. A Surety has no right to dictate terms to the 'Creditor' as to how he ought to make a 'recovery' and pursue his remedies against the 'Principal Debtor' 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so would be in contravention of Order 23 Rule 1(4) of the Civil Procedure Code. It is a well settled preposition in Law that the creditor is not bound to exhaust his/its remedy against the 'Principal Borrower' before invoking the 'Guarantor' or suing the 'Guarantor' for payment of outstanding sum(s), (unless otherwise agreed to in the Guarantee Deed). A 'suit' can be maintained against the 'Guarantor' for payment of outstanding sums in connection with the Loan extended to the 'Borrower' even if the 'Borrower' itself has not been sued by the Lender. This Tribunal is of the considered opinion that the 'Lender' has an independent access to the 'Guarantor' issued by the 'Principal Borrowers'. Therefore, this Tribunal holds that withdrawal of Section 7 Petition filed under the IBC Code, 2016 against the 'Principal Borrower' is not a fetter in initiating 'CIRP' against the 'Guarantor' in accordance with Law. 13. This Tribunal 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. 14. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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