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TMI Blog2022 (5) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... , one cannot remain oblivious of the fact that the outstanding debt Viz., the defaulted sum of the Corporate Debtor stood at ₹ 1,50,39,59,607.73 paise, which was payable on 27.09.2018, on the date when the Account as Non Performing Asset - the Appellant in its One Time Settlement had recognised itself as the Debtor in respect of the outstanding sum to be paid to the ₹ 1st Respondent/Applicant/Financial Creditor, in the latter s position as Assignor. The other vital fact to be kept in mind is that the Guarantee has a Live Force and that the Appellant s obligation is not wiped out in discharging its liability. It is to be remembered that under the I B Code, 2016, the Quantum of Liability is not a relevant factor to be taken into account and has no nexus in respect of the Initiation of Corporate Insolvency Resolution Process, in as much as the Default of a Debt is equivalent to ₹ 1 Crore and above. An Adjudicating Authority is not to determine a money claim or suit. The I B Code, 2016, requires an Adjudicating Authority only, to find out and record satisfaction in a summary adjudication, in regard to the occurrence of Default, as per ingredients of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 021 in Suo Motu Writ Petition (C) No.3 of 2022 had excluded the period between 15.03.2020 and 28.02.2022 for the purpose of calculating limitation. Hence, the period from 04.02.2022 till 28.02.2022 would stand excluded and the 1st day would run from 01.03.2022. 2. Viewed in the above backdrop, this `Tribunal holds that the `instant Comp. App (AT) (CH) (INS) No.102 of 2022 filed by the Applicant/Appellant is filed by the Applicant/Appellant in time and accordingly, the IA No. 237 of 2022 stands disposed of. No costs. Company Appeal (AT) (CH) (INS) No. 102 of 2022: PREFACE: The Appellant / Promoter and Former Managing Director of the Corporate Debtor (Kaveri Gas Power Pvt. Ltd.) has filed the Instant Company Appeal (AT) (CH) (INS) No.102 of 2022 being dissatisfied with the Order dated 04.02.2022 in CP(IB) No. 82/CHE/2021 passed by the Adjudicating Authority (`National Company Law Tribunal , Division Bench-I, Chennai). 2. Earlier, the Adjudicating Authority (`National Company Law Tribunal , Division Bench-1, Chennai) while passing the Impugned Order dated 04.02.2022 in CP (IB) No.82/CHE/2021 (filed under Section 7 read with Rule 4 of the Insolvency and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there is a default on the part of the Corporate Debtor for a sum exceeding Rs.l Crore. 10. Further, in relation to the aspect of Corporate Guarantee it is apt to refer to the decision of the Hon'ble Supreme Court in the matter of Laxmi Pat Surana -Vs- Union Bank of India Anr. in Civil Appeal No. 2734 of 2020 wherein it was held that the liability of the `Corporate Guarantor is `coextensive with that of the `Principal Borrower and that acknowledgment given by the `Principal Borrower also binds the `Corporate Guarantor ; 27. In law, the status of the guarantor, who is a corporate person, metamorphoses into corporate debtor, the moment principal borrower (regardless of not being a corporate person) commits default in payment of debt which had become due and payable. Thus, action under Section 7 of the Code could be legitimately invoked even against a (corporate) guarantor being a corporate debtor. The definition of corporate guarantor in Section 5(5A) of the Code needs to be so understood. 28. A priori, we find no substance in the argument advanced before us that since the loan was offered to a proprietary firm (not a corporate person), action under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (being a corporate debtor) whose liability is coextensive with that of the principal borrower and more so when it activates from the written acknowledgment of liability and failure of both to discharge that liability. 42. Suffice it to conclude that there is no substance even in the second ground urged by the appellant regarding the maintainability of the application filed by the respondent financial creditor under Section 7 of the Code on the ground of being barred by limitation. Instead, we affirm the view taken by the NCLT and which commended to the NCLAT - that a fresh period of limitation is required to be computed from the date of acknowledgment of debt by the principal borrower from time to time and in particular the (corporate) guarantor/corporate debtor vide last communication dated 08.12.2018. Thus, the application under Section 7 of the Code fifed on 13.02.2019 is within limitation. 11. Thus, from the facts which are borne on record, as narrated above, would show that the 'debt' is not barred by limitation and the submissions made by the Learned Counsel for the Corporate Debtor on the aspect of limitation, delivery of the notice at incorrect address, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of the Appellant that the ₹ 1st Respondent / Financial Creditor / Applicant had issued a Notice dated 12.03.2021 (`Letter of Invocation /`Demand Notice ), calling upon the Corporate Debtor to settle a sum of ₹ 150,39,59,607.73, purportedly arising out of the Guarantee Agreement and that a mere perusal of Recital and Clause 20 of the Guarantee Agreement would make it evident that the Corporate Debtor had extended its Corporate Guarantee only to a maximum extent of ₹ 50.48 Crores. 6. The Learned Counsel for the Appellant adverts to the Clauses No. 3, 20 and 21 of the Guarantee Agreement which expressly requires the Lender / Security Trustee , to issue a `Certificate or `Claim in writing stating that an amount was `due and payable under the Guarantee Agreement and only then, would the said amount become due and payable , as against the Corporate Debtor / Corporate Guarantor . 7. The Learned Counsel for the Appellant points out that the ₹ 1st Respondent` /`Financial Creditor in the Application in CP(IB)/82/CHE/2021 filed under Section 7 of the Code claimed that the Corporate Debtor / Corporate Guarantor had defaulted in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Assignee of the Original Creditor) on 12.03.2021. 13. The Learned Counsel for the `Appellant to lend support to the contention that the Date of `Demand Notice is the applicable Date of `Default for a `Corporate Guarantor refers to the Judgment of this Tribunal dated 23.04.2019 in Edelweiss Asset Reconstruction Company V Orissa Manganese and Minerals Ltd Ors (vide Comp App (AT) 437 OF 2018, wherein the proposition laid down in paragraph 16 to 27 is stated as under: A contract of guarantee matures into a binding obligation only upon its invocation. Contract of Guarantee is an autonomous contract and the admission of the principal debtor to CIRP does not mean that the debt stands proved as against the Guarantor in a Section 7 proceeding against the Corporate Guarantor automatically. The guarantee has to be invoked and the debt and default proved separately in the proceeding against the Guarantor 14. The Learned Counsel for the `Appellant adverts to the Judgment of this Tribunal dated 08.01.2019 in the matter of Ferro Alloys Corporation Ltd V Rural Electrification Corporation Ltd (Comp App No. 92 of 2017) wherein at paragraph 27, it is observed as under: Para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fault thereof be drawn based on these facts. 20. The Learned counsel for the Appellant submits that the `Corporate Guarantee Agreement is an `Autonomous Contract and irrespective of the proof of the `Principal Debt in the `Corporate Insolvency and Resolution Process of the `Principal Debtor as against it, that the `Debt to the extent carried by the `Corporate Debtor has to be proved separately by the `Applicant /`Creditor in an application filed under Section 7 of the Code and further that the `Statute prescribed no exception. 21. The Learned Counsel for the Appellant contends that the aggregates sum of `Principal claimed in the purported `Letter of Intent is itself called into question much like the `Invoice itself being disputed. 22. The Learned Counsel for the Appellant points out that the decision in Sabbas Winifred Joseph V IDBI Bank Ors (vide Comp. App. (AT) (INS) 411 of 2021 dated 27.01.2022), was in relation to `Limitation and its applicability vis- -vis the `Principal Debtor and `Corporate Debtor . In the instant `Appeal , according to the `Appellant , no question of `Limitation is raised. As such, the said decision, is inapplicable to the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulars of Debt , it was mentioned that the total outstanding `Debt of Corporate Debtor was ₹ 50.48 Crores towards `Working Capital Assistance including interest, expenses and costs, as per the Agreement dated 19.07.2018. In respect of the amount claimed to be in Default and date on which the Default occurred, it was mentioned under Part-IV of Form-I that total outstanding Debt of the Corporate Debtor arose from ₹ 50.48 Crores, as per the `Working Capital Assistance Agreement dated 19.07.2018 along with interest, at ₹ 52,25,74,088 as on 31.12.2020. 28. Furthermore in Form-I Part-IV Column No.3, it was also mentioned that the total outstanding Debt of the Principal Borrower/Debtor M/s. Cauvery Power Generation Power Limited stood at ₹ 1,50,39,59,607.73 and that the entire debt was `Due for Payment originally when the `Account was declared as `Non Performing Asset on 27.09.2018. The `Notice `Invoking the Corporate Guarantee was issued on 16.03.2021. 29. Before the `Adjudicating Authority the `Corporate Guarantor/Kaveri Gas Power Limited had averred that the alleged `Default by the `Corporate Guarantor is regard to the Debt of the Principal Borr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d conditions set out in the `Working Capital Consortium Agreement dated 31.10.2013 and First Amendment to `Working Capital Consortium Agreement dated 19.07.2018. 34. It must be borne in mind that Clause 6 to 8 of the `Guarantee Agreement dated 19.07.2018, executed by the Kaveri Gas Power Limited (Guarantor) run as under : 6. The Lender/Security Trustee shall have full liberty, without notice to the Guarantor and without in any way affecting this guarantee, to exercise at any time and in any manner any power or powers reserved to the Lender/Security Trustee under the Working Capital Agreement to enforce or forbear to enforce payment of the Loans or any part thereof or interest or other monies due to the Lender/Security Trustee from the Borrower or any of the remedies or securities available to the Lender/Security Trustee, to enter into any composition or compound with or to grant time or any other indulgence or loans to the Borrower AND the Guarantor shall not be released by the exercise by the Lender/Security Trustee of its liberty in regard to the matters referred to above or by any act or omission on the part of the Lender/Security Trustee or by any other matter or thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the `Lender/Security Trustee receive any Security or Commission from the Borrower for giving this `Guarantee so long as monies remain `due and payable by the `Borrower to the `Lender/Security Trustee under the `Working Capital Agreement . 37. In reality, Clause 20 of the `Guarantee Agreement dated 19.07.2018 categorically provides that the liability of the `Guarantor shall not exceed the sum of ₹ 50.48 Crores plus all interest, additional and penal interest, further interest, premium on pre-payment, costs, charges and other monies payable by the Borrower to the `Lender/Security Trustee under the `Working Capital Agreement . Moreover, the `Clause 20 of the Guarantee Agreement , says that `A Certificate or `Claim in writing by the `Lender/Security Trustee stating the amount at any particular time due and payable under this `Guarantee shall be `conclusive evidence as against the `Guarantor , their `representatives and estate ; which shall be paid without demur . 38. To put it precisely, `Clause 23 of the `Guarantee Agreement dated 19.07.2018 mentions that the `Guarantor agrees and declares that the rights and power conferred on the `Lender/Security Truste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B 85 : 119 LT 727 (CA)] and Hartland [(1863) 1 H C 667 : 7 LT 792], the limitation begins to run when the demand is made and the guarantor commits breach by not complying with the demand. 12. We will examine the meaning of the words `on demand . As notice above, the High Court was of the view that the words on demand in law have a special meaning and when an agreement states that an amount is payable on demand, it implies that it is always payable, that is payable forthwith and a demand is not a condition precedent for the amount to become payable. The meaning attached to the expression `on demand as `always payable or `payable forthwith without demand is not one of universal application. The said meaning applies only in certain circumstances. The said meaning is normally applied to promissory notes or bills of exchange payable on demand. We may refer to Articles 21 and 22 in this behalf. Article 21 provides that for money lent under an agreement that it shall be payable on demand, the period of limitation (3 years) begins to run when the loan is made. On the other hand, the very same words` payable on demand have a different meaning in Article 22 which provides that f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the claim is a live claim (that is, a claim which is not barred) against the principal debtor, limitation in respect of the guarantor will run from the date of such demand and refusal/non-compliance. Where guarantor becomes liable in pursuance of a demand validly made in time, the creditor can sue the guarantor within three years, even if the claim against the principal debtor gets subsequently time-barred. To clarify the above, the following illustration may be useful: Let us say that a creditor makes some advances to a borrower between 10-4-1991 and 1-6-1991 and the repayment thereof is guaranteed by the guarantor undertaking to pay on demand by the creditor, under a continuing guarantee dated 1-4-1991. Let us further say a demand is made by the creditor against the guarantor for payment on 1-3-1993. Though the limitation against the principal debtor may expire on 1-6-1994, as the demand was made on 1-3-1993 when the claim was `live against the principal debtor, the limitation as against the guarantor would be 3 years from 1-3-1993. On the other hand, if the creditor does not make a demand at all against the guarantor till 1-6-1994 when the claims against the principal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are able to say that by necessary implication that liability is also affected by some conduct of the principal debtor or any other agreement between the principal debtor and the creditor, attracting the provisions of Section 133, 134 or 135 of the Contract Act, the principle laid down in Subramania V Narayanaswami will not extend to a case where a temporarily the liability of the principal debtor has been suspended and as therefore, become unenforceable. A reference to Section 7 of the Act indicates that it is only a suspension and a liability is not affected at all. Section 7 of the Act specifically provides in computing the period of limitation for the enforcement of any right, privilege, obligation or liability referred to in Clause (b) of Section 4 the period during which it or the remedy for the enforcement thereof was suspended, shall be excluded. It is therefore clear that there is no extinguishment of the principal debt, and the contract between the guarantor and the creditor stands absolutely unaffected by the passing of the notification under Section 3, declaring a particular undertaking as a relief undertaking, with great respect we are unable to agree with the reasoni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the principal debtor, so long as the creditor satisfies the court that the principal debtor is in default. 45. In the decision of the Hon ble Supreme Court in Syndicate Bank V Channaveerappa Beleri Ors reported in (2006) 11 SCC 506 at Spl Page 517 wherein at paragraph 9 it is observed as under:- 9. A guarantor s liability depends upon the terms of his contract. A `continuing guarantee is different from an ordinary guarantee. There is also a difference between a guarantee which stipulates that the guarantor is liable to pay only on a demand by the creditor, and a guarantee which does not contain such a condition. Further, depending on the terms of guarantee, the liability of a guarantor may be limited to a particular sum, instead of the liability being to the same extent as that of the principal debtor. The liability to pay may arise, on the principal debtor and guarantor, at the same time or at different points of time. A claim may be even time-barred against the principal debtor, but still enforceable against the guarantor. The parties may agree that the liability of a guarantor shall arise at a later point of time than that of the principal debtor. We have referred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n discharging its liability. It is to be remembered that under the I B Code, 2016, the `Quantum of Liability is not a relevant factor to be taken into account and has no nexus in respect of the `Initiation of `Corporate Insolvency Resolution Process , in as much as the `Default of a `Debt is equivalent to ₹ 1 Crore and above. 53. An `Adjudicating Authority is not to determine a `money claim or `suit . The I B Code, 2016, requires an `Adjudicating Authority only, to find out and record satisfaction in a summary adjudication, in regard to the occurrence of `Default , as per ingredients of Section 4, before admitting a `Petition . 54. In the teeth of I B Code, 2016, the aspect of extent of liability can be dealt with and arrived at a final solution by a `Resolution Professional based on the claims projected by the parties, of course after the initiation of `CIRP . Furthermore, in any event, the controversy/dispute relating to the `extent of liability is not a determining factor at the stage of initiation of CIRP . 55. Be that as it may, in the light of foregoing detailed `Qualitative and `Quantitative discussions, this `Tribunal taking into account of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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