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TMI Blog2022 (8) TMI 1158X X X X Extracts X X X X X X X X Extracts X X X X ..... t Respondent/Bank has, in the instant case, proved the Debt and Default committed by the Appellant/Personal Guarantor and undoubtedly, the Default is more than Rs.1,000/- and that the Company Petition, on the file of the Adjudicating Authority, is well within the Limitation Period which is evident from the Statement of Account, Guarantee Agreements, Revival Letters, Loan Documents, which are quite explicit, self-explanatory and admits of no exception, as opined by this Tribunal. This Tribunal holds that the Appellant as a Personal Guarantor of the Corporate Debtor, cannot wriggle out of his Liability under the Guarantee Deed. Whether the Impugned Order passed by the Adjudicating Authority is not a speaking one and is in negation of the principles of natural justice? - HELD THAT:- It cannot be brushed aside that a reasoned/speaking order, passed by an Adjudicating Authority, will have an appearance of justice. An unreasoned order will be just and valid from the point of view of the Authority who passes the same, but to the Affected Person, the said order is an unreasonable and an illegal one - An Appeal, in law, is an elongation of Original Proceedings of the Adjudicating Au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pal, Member (Judicial): The Appellant / 1st Respondent has preferred Comp. App (AT) (CH) (INS) No. 239 of 2022 as an Aggrieved Person on being dissatisfied with the impugned order dated 20.06.2022 in CP(IB) No. 401 /95 of IBC/ HDB/ 2020, passed by the Adjudicating Authority ( National Company Law Tribunal , Bench I , Hyderabad), in admitting the Petition . 2. The Adjudicating Authority ( National Company Law Tribunal , Bench I, Hyderabad), while passing the impugned order dated 20.06.2022 in CP(IB) No. 401/95 of IBC/HDB/2020 at paragraphs 12 and 13 had observed the following: 12. At the outset it may be stated that the Financial Creditor has initiated Corporate Insolvency Resolution Process against respondent no. 2 in CP (IB) No. 407 of 2018 which has been admitted by the Adjudicating Authority vide order dated 13.08.2019. The present Petition is filed against respondent no.1, who is Personal Guarantor to the Corporate Debtor. Despite service of notice and opportunity afforded, respondent no.1 did not choose to contest the matter. Thus, the claim of the applicant as against respondent no. 1 stands unrebutted. 13. It has been stated that respondent no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs to Regulation 3A of the Foreign Exchange Management (Guarantees) Regulations, 2000, which reads as under: 3A. No corporate registered under the Companies Act, 1956 (1 of 1956) shall avail domestic rupee denominated structure obligations by obtaining credit enhancement in the form of guarantee by international banks, international financial institutions or joint venture partners, except with the prior approval of the Reserve Bank: Provided howsoever that, 1 [a person resident in India who is eligible to raise foreign currency loan under sub-regulation [1] of Regulation 6 of Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 read with Schedule I thereto,] may obtain, without the prior approval of the Reserve Bank, credit enhancement in the form of guarantee from a person resident outside India for the domestic debts raised by such companies through issue of capital market instrument like bonds and debentures subject to satisfying the terms and conditions as may be stipulated by the Reserve Bank from time to time, in this regard.] and comes out with a plea that a Foreign National cannot Guarantee a Debt taken by an India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is quite surprising that even when the mentioning had not been made before the NCLT, the NCLT Registry presumed that the mentioning would be about final hearing of the case and asked for a Defence Note. Furthermore, after the Defence Note was sent by the Corporate Debtor vide email dated 11.8.2020 (attached at page 27, Reply of Respondent No.2 UICL in CA No. 892/2020, diary number 23638/21.11.2020), the corporate debtor proceeds to admit the operational debt of UICL without so much as a weak defence, nor did it seek the right and time to file a complete reply, as would be normally expected. Thus, without a full and proper hearing, as was desirable from the point of view of natural justice, the impugned order is passed by the Adjudicating Authority (NCLT) on 12.8.2020. If anything, the events as they unfolded show the haste and alacrity with which the matter as serious as initiating CIRP against a going concern was dealt with, without any regard to natural justice. 15. The Learned Counsel for the Appellant refers to the Judgment of this Tribunal dated 21.10.2021 in Arvind Bali and Ors., Union of India, Ministry of Corporate Affairs and Ors., reported in MANU/NL/0460/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplied, is expressly or by implication forbidden by statute, no court will lend its assistance to give it effect. Further, a contract is void if prohibited by a statute under a penalty, even without express declaration that the contract is void, because such a penalty implies a prohibition. Similarly, in the case of Union of India v. Colonel L.S.N. Murthy Anr. MANU/SC/1377/2011 : (2012) 1 SCC 718 (paras 16 to 19 and 21), the Court opined that the contract would be lawful, unless the consideration and object thereof is of such a nature that, if permitted, it would defeat the provisions of law and in such a case the consideration or object is unlawful and would become void and that unless the effect of an agreement results in performance of an unlawful act, an agreement which is otherwise legal cannot be held to be void and if the effect of an agreement did not result in performance of an unlawful act, as a matter of public policy, the court should refuse to declare the contract void with a view to save the bargain entered into by the parties and the solemn promises made thereunder. The Court adverted to the exposition in the earlier decision in Shri Lachoo Mal v. Shri Radhey Shyam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, the cause of action against any purported guarantor , being coterminus, would commence on 26.12.2015. In this connection, the Learned Counsel for the Appellant refers to the Judgment of the Hon ble Supreme Court in B.K. Educational Services Pvt Ltd. Parag Gupta Associates dated (vide Civil Appeal No. 23988 of 2017) dated 11.10.2018, wherein at paragraph 27, it is observed as under: 27. It is thus, clear that since the Limitation Act is applicable to applications filed under Section 7 and 9 of the Code from the inception of the code, Article 137 of the Limitation Act gets attracted the right to sue , therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, save and except in those cases, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such applications. 21. The Learned Counsel for the Appellant refers to the decision of High Court of Patna in Bihar State Co-operative Bank Ors. V. Nareshwar Prasad, reported in MANU/BH/0270/2004, wherein it is observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficate of Posting to the address to which it is required to be despatched under this Clause shall be deemed to have been duly served on the Guarantors four days after the date of posting thereof, and shall be sufficient if signed by any Officer of the Bank and in proving such service it shall be sufficient if it is established that the envelope containing such notice, communication or demand was properly addressed and put into the post office. 25. The Learned Counsel for the 1st Respondent/Bank by referring to the Deed of Guarantee for overall Limit dated 13.05.2014, executed by the Appellant / Personal Guarantor in favour of the 1st Respondent/Bank brings it to the notice of this Tribunal, in the said Guarantee Deed , it was mentioned that PPS Enviro Power Private Limited ( Corporate Debtor ), Hyderabad (referred to as a Borrower and the amount of the Original Overall Limit was mentioned as Rs.149,35,00,000/- as the Aforesaid Credit Facilities on the terms and conditions specified and contained in the agreement of loan. 26. It is pointed out on behalf of the 1st Respondent / Bank that the Appellant/Personal Guarantor address is mentioned in the Deed of Guarantee f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Appellant / Personal Guarantor had executed a Revival Letter dated 10.08.2016, acknowledging its liability, in respect of the 1st Respondent/Bank/Financial Creditor, after two years, from the date of execution of the Guarantee Agreement , acknowledging his liability, which exhibits the Existence of a Valid and Subsisting Guarantee Agreement . 31. The Learned Counsel for the 1st Respondent/Bank emphatically urges before this Tribunal that the address mentioned in the Appeal Memorandum is the actual address of the Appellant/Personal Guarantor Viz. Indian Address and in the Guarantee Agreement, the residence address of the Appellant is shown as Indian Address . Further I B Code, 2016, is an overriding one, over other Laws . 32. The Learned Counsel for the 1st Respondent/Bank points out that as per Section 95 of the I B Code, 2016, the Financial Creditor has to establish Debt and Default committed by the Personal Guarantor and the Default committed ought to be more than Rs.1,000/- and in the Revival Letters , Guarantee Agreements , Statement of Accounts and other Loan Documents in the Company Petition indicate that the Company Petition filed bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip firms; and (g) individuals, other than persons referred to in clause (e).] in relation to their insolvency, liquidation, voluntary liquidation or bankruptcy, as the case may be. Definitions: Claim: 37. Section 3 (6) of the I B Code, 2016 defines Claim , meaning: (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured. Creditor: 38. Section 3 (10) of the I B Code, 2016 defines Creditor , meaning any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder . Debt: 39. Section 3 (11) of the I B Code, 2016 defines Debt , meaning a liability or obligation in respect of a Claim , which is due from any person and includes a financial debt and operational debt . Default: 40. Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal shall stand transferred to the Adjudicating Authority dealing with insolvency resolution process or liquidation proceeding of such corporate debtor . Section 234 of the I B Code, 2016 Agreements with Foreign Countries: 48. Section 234 of the Code, specifies that; (1) The Central Government may enter into an agreement with the Government of any country outside India for enforcing the provisions of this Code. (2) The Central Government may, by notification in the Official Gazette, direct that the application of provisions of this Code in relation to assets or property of corporate debtor or debtor, including a personal guarantor of a corporate debtor, as the case may be, situated at any place in a country outside India with which reciprocal arrangements have been made, shall be subject to such conditions as may be specified. Section 238 of the I B Code, 2016: 49. Section 238, provisions of this Code to override other laws, enjoins that; The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rve Bank, no person, shall- (a) deal in or transfer any foreign exchange or foreign security to any person not being an authorised person; (b) make any payment to or for the credit of any person resident outside India, in any manner; (c) receive otherwise through an authorised person, any payment by order or on behalf of any person resident outside India in any manner. Explanation. For the purpose of this clause, where any person in, or resident in, India receives any permanent by order or on behalf of any person resident outside India through any other person (including an authorised person) without a corresponding inward remittance from any place outside India, then, such person shall be deemed to have received such payment otherwise than through an authorised person; 55. Regulation 3 of The Foreign Exchange Management (Guarantees) Regulations 2000, under the caption Prohibition , provides as under: Save as otherwise provided in these regulations, or with the general or special permission of the Reserve Bank, no person resident in India shall give a guarantee or surety in respect of, or undertake a transaction, by whatever name called, which has the effect of guara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fiscation of the value equivalent, situated in India, the Foreign exchange, foreign security or immovable property. (1-B) If the Adjudicating Authority, in a proceeding under subsection (1A) deems fits, he may, after recording the reasons in writing, recommend for the initiation of prosecution and if the Director of Enforcement is satisfied, he may, after recording the reasons in writing, may direct prosecution by filing a Criminal Complaint against the guilty person by an officer not below the rank of Assistant Director. (1-C) If any person is found to have acquired any foreign exchange, foreign security or immovable property, situated outside India, of the aggregate value exceeding the threshold prescribed under the proviso to sub-section (1) of section 37-A, he shall be, in addition to the penalty imposed under sub-section (1-A), punishable with imprisonment for a term which may extend to five years and with fine. (1-D) No court shall take cognizance of an offence under subsection (1-C) of section 13 except as on complaint in writing by an officer not below the rank of Assistant Director referred to in subsection (1-B).] (2) Any Adjudicating Authority adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had sanctioned the Loans to the Corporate Debtor . As a matter of fact, the Loans were earlier sanctioned by the State Bank of Hyderabad , later merged with the State Bank of India . The breakup details of the Loan are as under: Facility Amount Granted (Rs./Crores) Amount Disbursed (Rs./Crores) Term Loan (SBH) 8.78 8.78 Term Loan (SBT) 35.00 35.00 Term Loan 1 (SBI) 34.18 34.18 Term Loan II (SBI) 30.38 30.38 Cash Credit (SBH) 15.00 15.00 Cash Credit (SBI) 30.00 30.00 Corporate Loan (SBH) 3.00 3.00 Corporate Loan (SBT) 4.00 4.00 Letter of Credit (SBH) 30.00 30.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and admitting the Application against the said Corporate Debtor . 63. In the instant Appeal , before this Tribunal , the Appellant/Personal Guarantor , is challenging the impugned order in CP (IB) No. 401 / 95 of IBC/ HDB/ 2020 dated 20.06.2022, passed by the Adjudicating Authority , ( National Company Law Tribunal , Hyderabad Bench), whereby and whereunder on the 1st Respondent/Bank s Application under Section 95 of the Code, read with Rule 7 (2) of the I B (Application to Adjudicating Authority for Insolvency Process for Personal Guarantor to Corporate Debtor, Rules, 2016) was admitted and Mr. P.V.B. Shadakara Rao was appointed as Resolution Professional . 64. According to the Appellant, the 2nd Respondent/Corporate Debtor had availed numerous loans to an extent of Rs.225.94 Crores from the 1st Respondent/Bank and the Account of the Corporate Debtor was classified as Non Performing Asset on 26.12.2015. 65. Before this Tribunal , on behalf of the Appellant/Personal Guarantor of the 2nd Respondent/Corporate Debtor , it is contended that the Appellant being an Australian Citizen (Foreign National), holds a Valid Australian Passport , bearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Authority (NCLT), Hyderabad at paragraphs 9 to 11 (vide Vol. 5, pages 843 and 844), it is mentioned as under: 9. It is also submitted that the last sanction accorded by erstwhile SBH was a Short-Term Corporate Loan of Rs.3 Cr conveyed vide SBH Bank letter dated 27.03.2015 (pages 194-213 of the Application filed), and the R-1 did not consent to the loan as is evident on the face of the Arrangement Letter itself. It is also relevant to point out that SBH, in its sanction dated 19.06.2013 (pages 164 to 174 of the Application), waived the stipulation vide its letter dated 19.08.2013 (page 174 of the Application). 10. It is also submitted that the last sanction accorded by erstwhile SBT was a Short-Term Corporate Loan of Rs. 4 Cr conveyed vide SBH Bank Letter dated 28.01.2016 (pages 214 219 of the Application filed), and the R-1 was not a guarantor at all. 11. It is also submitted that the procedure adopted under Section 99 of IBC, 2016, is considered arbitrary, and the same was challenged before the Karnataka HC in Babu A Dhammanagi v. Union of India with WP 21626 / 2021. In the event, at a later date, if the vires of the Section was challenged in other High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Contract Act, 1872, pertains to Surety s Liability , which is co-extensive with that of the Principal Debtor , unless it is otherwise provided by the Contract . Further, this Tribunal worth recalls and recollects the decision of the Hon ble Supreme Court of India in Central Bank of India v. C L Vimla, reported in AIR 2015 SC Page 2280, wherein it is observed as under: We are of the opinion that the questions that need to be decided by us are regarding the liability of the guarantor under Section 128 of the Indian Contract Act, 1872. The legislature has succinctly stated that the liability of the guarantor is co-extensive with that of the principal debtor unless it is otherwise provided by the contract. This Court has decided on this question, time and again, in line with the intent 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile making the demand for payment, no period is specified, within which the payment should be made, the breach occurs or right to sue accrues when demand is served on the Guarantor , as per decision of Hon ble Supreme Court of India in Syndicate Bank v. Chenna Veerappa Belari Ors., AIR 2006 SC Page 1874. 77. It is pointed out that the Liability of a Guarantor is co-extensive and the word co-extensive was on an objective for word extent and it related to quantum of principle debt as per the decision in Indian Bank, Madras v. State of Tamil Nadu rep. by Secretary, Department of Handlooms and Textiles, 2002 (2) M.L.J. 649. 78. The Bank Guarantees have their Genesis in Primary Contract between the Parties , are nevertheless Autonomous and Independent Contracts . A Bank Guarantee is a Contract between Bank Beneficiary of Guarantee and it is also a Security given to the Beneficiary by a Third Party . 79. A Suit to enforce Liability borne out of Continuing Guarantee , is governed by Article 115 of the Limitation Act, 1963 , and the Cause of Action arises, when the Contract of Guarantee , is Violated . 80. At this juncture, this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdance with those enactments. As of now, Section 243 has not been notified. In the event Section 243 is notified and those two Acts repealed, then, the present notification would not have had the effect of covering pending proceedings against individuals, such as personal guarantors in other forums, and would bring them under the provisions of the Code pertaining to insolvency and bankruptcy of personal guarantors. The impugned notification, as a consequence of the non obstante clause in Section 238, has the result that if any proceeding were to be initiated against personal guarantors it would be under the Code. 106. The rationale for allowing directors to participate in meetings of the CoC is that the directors liability as personal guarantors persists against the creditors and an approved resolution plan can only lead to a revision of amount or exposure for the entire amount. Any recourse under Section 133 of the Contract Act to discharge the liability of the surety on account of variance in terms of the contract, without her or his consent, stands negated by this court, in V. Ramakrishnan where it was observed that the language of Section 31 makes it clear that the approv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Moreover, all the Correspondences issued were only in regard to the Appellant s India Address. 84. The emphatic stand of the 1st Respondent/Bank is that no record has been exhibited / placed before this Tribunal in Appeal that the Appellant/Personal Guarantor is not a Citizen of India . 85. A mere running of the eye of Section 95 of the I B Code, 2016, unerringly points out that the right showered upon a Financial Creditor under the I B Code, 2016, to initiate Insolvency Resolution Process Proceedings is an independent and special proceedings , which the Financial Creditor can take recourse, despite availability of any other Fora , in Law . 86. It is pointed out that the Hon ble High Court of Karnataka, on 05.04.2022, had dismissed the Writ Petition, assailing the Constitutional validity of Section 95, 99 and 100 of the I B Code, 2016. In fact, the Application was filed by the Financial Creditor / Piramal Capital Housing Finance Limited , before the Adjudicating Authority ( Tribunal ), through the Resolution Professional, under Section 95 of the Code for initiation of Insolvency Resolution Process against the Personal Guarantor . The Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tement of Account , Guarantee Agreements , Revival Letters , Loan Documents , which are quite explicit, selfexplanatory and admits of no exception, as opined by this Tribunal . 92. The Appellant / Personal Guarantor had entered appearance before the Adjudicating Authority resting upon the Indian Address and as such, the Appellant cannot take a mutually contradictory and inconsistent stand, especially in the teeth of I B Code, 2016, which is an inbuilt, and self contained Code, overriding other laws. Viewed in that perspective, this Tribunal holds that the Appellant as a Personal Guarantor of the Corporate Debtor , cannot wriggle out of his Liability under the Guarantee Deed . 93. In regard to the plea taken on behalf of the Appellant / Personal Guarantor that the Impugned Order passed by the Adjudicating Authority is not a speaking one and is in negation of the principles of natural justice , Viz., the Reply / Response of the Appellant / Personal Guarantor and his defences raised were not taken into account by the Adjudicating Authority / Tribunal , it is to be pointed out that the Adjudicating Authority / National Company Law Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istered Post or Certificate of Posting to the address to which it is required to be despatched under this Clause shall be duly served on the Guarantors, 4 days after the date of posting thereof and shall be sufficient if signed by any Officer of the Bank and in proving such Service, it shall be sufficient if it is established that the envelope containing such Notice , Communication or Demand was properly addressed and put into the Post Office . 98. It is not in dispute that the Appellant/Personal Guarantor stood as Guarantor in order to secure the repayment of financial assistance availed by the Principal Borrower/Corporate Debtor . In the instant case, the Notice was addressed to the Appellant/Personal Guarantor of the Corporate Debtor and others on 11.10.2017, requiring them jointly and severally to pay the sum of Rs.2,27,05,401.90, along with interest and other charges. Even though the Loan Account of the Corporate Debtor was classified as Non Performing Asset on 26.12.2015, in view of the fact that Notice demanding Recall of Loan was issued to the Appellant / Personal Guarantor was on 11.10.2017, the Demand Notice dated 23.09.2020 was issued to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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