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TMI Blog2022 (9) TMI 1010X X X X Extracts X X X X X X X X Extracts X X X X ..... tificate, fresh cause of action would arise to initiate proceedings under Section 7 of the Code. Further Clauses 9 10 of the Deed of Guarantee specify that the Guarantee is a continuing one. It a fit case to consider the Recovery Certificate which has been issued by the Hon ble DRT, Mumbai on 25.04.2016 and the second OTS dated 12.03.2018 and the part payment which has been made on 28.03.2018 read together with the warrant of attachment dated 20.06.2019 and the date of filing of the Petition dated 17.03.2022 we observe that the Section 7 Petition is not barred by Limitation. The OTS is not a novation of the original debt but is only to be construed as Terms of Settlement offered and agreed upon by the Borrower to discharge its liability. The Guarantor is a direct beneficiary of the OTS. Having signed and accepted OTS proposal, the Appellant cannot now turn around and take a stand that the liability is not co-extensive or that the Guarantee was invoked only in 2013. This argument is not tenable as it is held that (a) it is a continuing Guarantee and (b) that it is not required for a continuing Guarantee to be invoked twice in these facts of the matter when the liability is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... initiated action under SARFAESI Act, 2002 and filed a Recovery Suit in the Hon ble DRT Mumbai. Subsequently, the Assignor Bank and the Borrower entered into a Settlement vide consent terms dated 14.02.2014 but the term of the Settlement was not adhered to and a fresh Notice dated 03.03.2015 was issued under Section 13(2) of the SARFAESI Act, 2002, calling upon the Borrower, the Personal Guarantors and the Corporate Debtor jointly and severally to make a payment of Rs.21,93,67,443/ together with future interest and charge payable from 01.03.2015. The Assignor Bank filed MA 17/2015 for issuance of Certificate of Recovery, and Recovery Certificate dated 25.04.2015 for a sum of Rs.23,69,54,603/ was issued along with future interest at 17% per annum. A letter dated 12.03.2018 was addressed to the Assignor Bank by the Borrower informing the Bank that they propose to settle the dues and offered a sum of Rs.16Crores/- as lumpsum Settlement. Subsequently an amount of Rs.8Crores/- was paid. The debt payable under the credit facility was assigned by the Assignor Bank in favour of the Financial Creditor vide Assignment Agreement dated 18.03.2019. Pursuant to the issuance of the Recovery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tlement Agreement whereby payment is due does not fall within the ambit of Section 5(8) so as to constitute a Financial Debt . The terms of the 2018 Settlement does not record any disbursement against the Time Value of Money and hence any default under the Settlement Agreement cannot give rise to a Financial Debt under the realm of Code. The Assignee Company mentions the date of default as the date mentioned in the 2018 Settlement Agreement but has not chosen to file the letter of the Assignor Bank in which the Banker had accepted discharge of the Corporate Guarantor in their letter dated 28.03.2018 written to the Borrower. The claim is barred by Limitation as the default arises qua the 2018 Settlement to which the Appellant was not made a party and the date of default according to the Financial Creditor is 30.06.2018 relying upon the second Settlement dated 21.03.2018 and 28.03.2018 for which the Corporate Guarantor/Appellant was never a party. The Recovery Certificate was issued in 2016 and no steps were taken by the Assignor Bank till 2019, which in itself makes the invocation of Guarantee after 2019, as time-barred. There is no acknowledgement of debt i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rantee once again as the said letter is in compliance with Clauses 2 and 6 of the Terms of Guarantee, reproduced as hereunder: Clause 2-The Guarantors agree that the amount hereby guaranteed shall be due payable by the Guarantors jointly and severally to the Bank two days after demand and without demur merely upon the Bank sending to the Guarantors a demand notice requiring payment of the amount. Any such demand made by the Bank on the Guarantors shall be conclusive as regards the amount claimed therein . Clause 6-The Guarantee herein contained shall be enforceable against the Guarantors notwithstanding that no action of any kind has been taken by Bank against the Borrower and an intimation in writing sent to the Borrower and/or Guarantors by the Bank that a default or breach has occurred shall be treated as final and conclusive proof as to the facts stated therein. It is submitted that since the proceedings before DRT and under the SARFAESI Act, 2002, were initiated against both the Corporate Debtor and the Principal Borrower, the Guarantee has always been admitted as having been invoked by the original Lender. It is only on this basis that the Recovery Certif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act Act, 1872, and therefore the Judgements relied upon by the Appellant have no applicability to the facts of the present case. Even otherwise, the Appellant was a party to the DRT consent terms and the OTS letters and therefore now cannot say that they are not liable to pay the debts. Assessment: 6. The brief point which arises in this Appeal for consideration is whether the Appellant/Guarantor is liable to pay the amount when the Guarantee was initially invoked on 03.03.2015; whether the Learned Adjudicating Authority was justified in admitting the Section 7 Application. It is an admitted fact that the Appellant/Corporate Guarantor agreed to the consent terms and consent Order dated 14.02.2015 was passed by the Hon ble DRT Mumbai. It is also not in dispute that the Guarantee was invoked on 03.03.2015 under Section 13(2) of the SARFAESI Act, 2002, that the Assignor Bank filed an MA 17/2015 before the DRT for issuance of Recovery Certificate for Rs.25,69,67,959/ against the Principal Borrower and the Guarantors including the Appellant herein; DRT allowed MA 17/2015 and Recovery Certificate was passed for the subject amount on 02.12.2015; on 21.03.2018, the second consen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... properties of the Corporate Debtor which is a direct beneficiary of the OTS as the Appellant is the Managing Director and Promoter of the Corporate Debtor , Promoter and Director of the Principal Borrower and the Personal Guarantor as well. 10. At this juncture, we find it fit to reproduce the OTS letter: 11. We are also conscious of the fact that the Corporate Debtor was a party to the DRT consent terms and additionally the aforenoted OTS letter signed by the Appellant shows that they were very much a party to the proceedings. 12. We rely on the Judgement of the Hon ble Supreme Court in H.R. Basavaraj Vs. Canara Bank Ors. , (2010) 12 SCC 458, wherein it is observed in paras 14-16, 18 19 as follows: 14. A reading of the agreement clearly shows that the guarantee was to continue to all future transactions except when the guarantor disclaimed from his liability through a written statement. The deed also clearly mentions that while between the guarantor and borrower, the guarantor is only a surety; yet between the Bank and the guarantor, the surety is the principal debtor and his liability would be coextensive to that of the borrower. Accordingly, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erformed. This section gives statutory form to the common law principle of novation. The basic principle behind the concept of novation is the substitution of a contract by a new one only through the consent of both the parties to the same. Such consent may be expressed as in written agreements or implied through their actions or conduct. It was defined thus by the House of Lords in Scarf v. Jardine [(1882) 7 AC 345 : (1881-85) All ER Rep 651 (HL)] : (AC p. 351) that there being a contract in existence, some new contract is substituted for it, either between the same parties (for that might be) or between different parties; the consideration mutually being the discharge of the old contract. 19. It might be useful at this juncture to turn to the decision of this Court in Lata Construction v. Dr. Rameshchandra Ramniklal Shah [(2000) 1 SCC 586] whereby this Court held that if the rights under the old contract were kept alive even after the second agreement and rights under the first agreement had not been rescinded, then there was no substitution of contracts and, hence, no novation. (Emphasis Supplied) 13. We also place reliance on the Judgement of the Hon b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the instant case, Rs.111 lakhs had been paid towards outstanding interest on 28th March, 2014 and the offer of One Time Settlement was within three years thereafter. In any case, NCLAT overlooked the fact that a Certificate of Recovery has been issued in favour of Appellant Bank on 25th May 2017. The Corporate Debtor did not pay dues in terms of the Certificate of Recovery. The Certificate of Recovery in itself gives a fresh cause of action to the Appellant Bank to institute a petition under Section 7 of IBC. The petition under Section 7 IBC was well within three years from 28th March 2014. 131. It is not in dispute that the Respondent No.2 is a Corporate Debtor and the Appellant Bank, a Financial Creditor. The question is, whether the petition under Section 7 of the IBC has been instituted within 3 years from the date of default. Default is defined in Section 3(12) to mean non-payment of a debt which has become due and payable whether in whole or any part and is not paid by the Corporate Debtor . 133. As observed above, the Appellant Bank filed the Petition under Section 7 of the IBC on 12th October 2018. Within three months, the Appellant Bank filed an applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a Certificate of Recovery was issued in favour of the Appellant Bank in May 2017. The NCLT rightly admitted the application by its order dated 21st March, 2019. (Emphasis Supplied) 15. We also place reliance on the Judgement of the Hon ble High Court of Karnataka in Margaret Lalita Samuel Vs. Commercial Bank Limited , (1979) 2 SCC 396, wherein it is observed in para 10 as follows: 10. We may first consider the question of limitation. As already mentioned by us, the submission of Shri Bal was that every item of an overdraft account was an independent loan, limitation for the recovery of which was determined by Article 57 of the schedule to the Limitation Act, 1908. Limitation, according to the learned Counsel, started to run from the date of each loan. He relied on Basanta Kumar Mitra v. Chota Nagpur Banking Association Ltd. [AIR 1948 Pat 18 : 18 Com Cas 127] ; Brojendro Kishore Roy Chowdhury v. Hindustan Cooperative Insurance Society Ltd. [AIR 1918 Cal 707 : ILR 44 Cal 979 : 39 IC 705] ; National and Grindlays Bank Ltd. v. Tikam Chand Daga [AIR 1964 Cal 358] and Uma Shankar Prasad v. Bank of Bihar Ltd. [AIR 1942 Pat 201 : 12 Com Cas 35] In our view it is unne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o not see how the period of limitation could be said to have commenced running. Limitation would only run from the date of breach under Article 115 of the schedule to the Limitation Act, 1908. When the Bombay High Court considered the matter in the first instance and held that the suit was not barred by limitation, J.C. Shah, J., speaking for the Court said: On the plain words of the letters of guarantee it is clear that the defendant undertook to pay any amount which may be due by the Company at the foot of the general balance of its account or any other account whatever .... We are not concerned in this case with the period of limitation for the amount repayable by the Company to the bank. We are concerned with the period of limitation for enforcing the liability of the defendant under the surety bond .... We hold that the suit to enforce the liability is governed by Article 115 and the cause of action arises when the contract of continuing guarantee is broken, and in the present case we are of the view that so long as the account remained live account, and there was no refusal on the part of defendant to carry out her obligation, the period of limitation did not commence ..... X X X X Extracts X X X X X X X X Extracts X X X X
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