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TMI Blog2023 (9) TMI 1382X X X X Extracts X X X X X X X X Extracts X X X X ..... , Mr. Sachin Chandarna and Mr. Kartik Nagarkatti , Advocates JUDGMENT ASHOK BHUSHAN , J : 1. This Appeal by Financial Creditor has been filed against the Order dated 16th May, 2023 passed by National Company Law Tribunal, Mumbai Bench, Court- IV (hereinafter referred to as The Adjudicating Authority ) by which Section 7 Application filed by the Appellant has been dismissed as barred under Section 10A of Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as The Code ). 2. Brief facts of the case necessary to be noticed for deciding this Appeal are:- i. Essel Infraprojects Limited (hereinafter referred to as Essel ) proposed to issue 425 rated, unlisted, redeemable, non-convertible debentures (hereinafter referred to as NCD ) in two series being series No. I-Debentures and series No. II-Debentures having face value of Rs. 1 crore each aggregating nominal value of Rs. 425 Crores. ii. The Appellant agreed to act as Debenture Trustee for the benefit of the Debenture Holders on 22nd May, 2015. A share pledge agreement was also executed on 22nd May, 2015. A corporate guarantee was also executed on 22nd May, 2015 by the Corporate Debtor, Direct M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10A. Submission of Appellant that default occurred in 2019 was also repelled. vi. Aggrieved by the order dated 16th May, 2023 rejecting Section 7 Application this Appeal has been filed by the Financial Creditor-IDBI Trusteeship Services Limited. 3. Mr. Ramji Srinivasan, Learned Sr. Counsel appearing for the Appellant submits that Corporate Guarantee given by the Respondent is a continuing guarantee. Guarantee also includes amount due as a result continuous obligation. It is submitted that Financial Creditor has realized certain amount by sale of shares in September, 2020 hence after giving credit of realized amount, a notice has been issued to the Appellant on 13th May, 2022 which notice is the basis of filing of Section 7 Application. Date of Default in Section 7 Application was claimed as 15th May, 2022 which is consequent to default in making the payment in pursuance of notice dated 13th May, 2022. It is submitted that the Adjudicating Authority committed error in rejecting the Application as barred by Section 10A. Section 10A did not apply to the default occurring post suspension period. Embargo under Section 10A did not apply to the default occurring post suspension peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its capacity as a Corporate Guarantor. Continuous Default : i. The Defendant failed to maintain security cover from January 2019. ii. On 22nd May, 2020, as per the terms of issue, balance 351 NCDs fell due for redemption and Essel defaulted in making payment of the principal amount and redemption premium on the said NCDs in terms of the obligations under the DTD (defined hereinbelow). Notice for Redemption of Debentures dated 12th June, 2020 addressed by Financial Creditor to Essel calling upon Essel to redeem the said NCDs as per the contractual terms and repay in full the outstanding obligations with redemption premium and the default interest in respect of the said NCDs aggregating to an outstanding amount of Rs. 616,09,48,616/-. iii. Pledge Invocation Notice dated 12th June, 2020 thereby invoking the pledged shares under the Share Pledge Agreement to recover the amounts due and payable by Essel. iv. Invocation of Corporate Guarantee Notice dated 12th June, 2020 addressed by the Financial Creditor to the Corporate Debtor for an amount of Rs. 616,09,48,616/- with a demand to comply with the requisition as contained therein. However, the Corporate Debtor has failed to make good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption premium thereon. 12. In terms of said Deed of Guarantees instructed by ITSL, we hereby call upon the Guarantors jointly or severally to pay ITSL, a sum of Rs. 616,09,48,616/- (Rupees Six Hundred and Sixteen Crore Nine Lakh Forty Eight Thousand Six Hundred and Sixteen) outstanding as on 5th June 2020 along with further interest thereon as per the particulars of claim appended herein, within a period of 2 (Two) business days from the date of receipt of this notice failing which ITSL will be constrained to adopt appropriate legal proceedings against you as may be advised. 13. ITSL hereby confirms that demand made herein relates to the obligation of the Issuer Company under and in relation to the Transaction Documents and other related documents. Needless to state that this notice is without prejudice to, and does not impair or affect, the rights of ITSL or the Debenture Holders. This notice does not and shall not be construed as waiver of any rights or remedies, accruing to ITSL or the Debenture Holders whether presently or in the future, under any applicable law or in equity and does not bar Trustee or the Debenture Holders of any legal action, that may be taken by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after notice dated 12th June, 2020, certain sum was realized and appropriated towards outstanding dues of Rs. 616,09,48,616/-. It is useful to extract paragraph 5, 8 and 9 of the Notice which is as follows: 5. Pursuant thereto, in furtherance of the invocation of pledge by ITSL/our client, pledged shares of DTIL and ZEEL were sold by ITSL/our client in the open market in various different tranches. As a result thereof, ITSL/our client realised a sum of Rs. 160,34,27,533/- which should be appropriated towards the then outstanding amount of Rs. 616,09,48,616/-. Post the adjustment and after realization of the part payment against the total debt, an amount of Rs. 591,81,92,216/- is now due and payable as on 9th May 2022 by the issuer Company to ITSL/our client. Accordingly, you in your capacity as a Corporate Guarantor are jointly and severally liable to make payment of the said amount of Rs. 591,81,92,216/- inclusive of interest @12% per annum along with other contractual charges. .. 8. In these circumstances, we hereby call upon you to make payment of the balance sum of Rs. 591,81,92,216/- inclusive of interest @12% per annum with all other costs, charges and ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e view that default takes place when an obligation to pay arises. The obligation to pay cannot said to have arisen on occurrence of event of default unless notice in the form given in schedule II of the guarantee agreement is served on the guarantor. Further, it is settled legal proposition that date of default does not shift. 12. Before we proceed further it is relevant to notice certain clauses of the Deed of Guarantee dated 22nd May, 2015. Clause 4, 5, 6 and Clause 15 of the Guarantee Deed is as follows: 4. For the purposes of invoking the guarantee Issued in terms hereof, the Debenture Trustee shall, either upon (a) _the occurrence of an Event of Default In terms of the Transaction Documents or (b) failure to deposit the Outstanding Amounts in the Designated Account, upon the exercise of Put Option or Call Option (as the case may be), 5 (Five) Business Days before the Put Option or Call Option date (as the case may be) or (c) upon any default in making Payments, issue a notice to the Guarantors In writing, in the form given in Schedule II hereto {Notice of Demand'} upon the receipt of which the Guarantors agrees and undertakes that the Guarantors shall, wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due not only against the Principal Borrower but also against the Corporate Guarantor, which is the scheme of the I B Code. When we read with as is delineated by Section 3(11) of the Code, debt becomes due both on Principal Borrower and the Guarantor, as noted above. The definition of default under Section 3(12) in addition to expression due occurring in Section 3(11) uses two additional expressions i.e payable and is not paid by the debtor or corporate debtor . The expression is not paid by the debtor has to be given some meaning. As laid down by the Hon ble Supreme Court in Syndicate Bank vs. Channaveerappa Beleri Ors. (supra), a guarantor s liability depends on terms of his contract. There can be default by the Principal Borrower and the Guarantor on the same date or date of default for both may be different depending on the terms of contract of guarantee. It is well settled that the loan agreement with the Principal Borrower and the Bank as well as Deed of Guarantee between the Bank and the Guarantor are two different transactions and the Guarantor s liability has to be read from the Deed of Guarantee. .. 32. In view of the foregoing discussion, we arrive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealised which has been given due credit in the total outstanding the date of default has to be treated subsequent date i.e. 15th May, 2022 cannot be accepted. The notice dated 13th May, 2022 at best is in continuation of the invocation of corporate guarantee notice dated 12th June, 2020 demanding the outstanding amount from Corporate Guarantor after adjusting the amount realised in September, 2020. Subsequent realization of part amount by sale of share and giving credit to said amount in outstanding amount which fell due on 16th June, 2020 cannot take out the Application under Section 7 out of prohibition under Section 10A. The submission of Mr. Ramji Srinivasan that Application is not barred by Section 10A cannot be accepted. 15. Learned Counsel for the Appellant has relied on Judgment of this Tribunal in Ramji Power Construction Ltd. Vs. M/s. Jharkhand Urja Sancharan Nigam Ltd. C.A.(AT) Ins. No. 596 of 2020 which was a case where this Tribunal has examined the contention regarding the limitation for filing Section 9 Application. In the above case, there was an arbitral award dated 14.02.2008 which was a date mentioned as a date of default in Section 8 Notice. This Tribunal n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 175 of 2021. Hon ble Supreme Court in the aforesaid case, Section 9 Application was dismissed on the ground that Application was barred by time. Hon ble Supreme Court in the Appeal noticed that large number of invoices were issued between 12.03.2011 to 30.06.2017, NCLAT considering the starting point of limitation as 12.03.2011 dismissed Section 9 Application as barred by time. Hon ble Supreme Court held that NCLAT ought to have considered the invoices at least for period preceding three years from the date of application under Section 9 rather than considering the starting point. Hon ble Supreme Court set aside the Order and remanded the matter for consideration before NCLT. The Judgment of the Hon ble Supreme Court was on the facts of the case where application was filed based on large number of invoices and Hon ble Supreme Court was of the view that Adjudicating Authority ought to have considered the invoices at least preceding three years from the date of filing of Section 9 Application. The Above judgment does not in any manner help the Appellant in the present case. 18. After having heard and perusing the record, we are satisfied that liability of corporate guarantor to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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