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TMI Blog2024 (4) TMI 477X X X X Extracts X X X X X X X X Extracts X X X X ..... t case, looking at the Form 1 of Section 7 in Part - I filled in by the Financial Creditor, it has been clearly stated at Sl. No.5 that A copy of the Power of Attorney dated July 8, 2019 authorising Mr. Rahul Dodeja to act on the behalf of the petitioner is annexed herewith and marked as Exhibit 2 as is placed at page 90 of the Appeal Paper Book ( APB in short). On looking at the Power of Attorney, it is noticed that the same has been issued pursuant to Board Resolution of 12.03.2019 empowering Mr. Rahul Dodeja to file the Section 7 application as is seen at page 103 of the APB. It is found that Mr. Rahul Dodeja had been provided general authorisation by the Yes Bank by way of Power of Attorney pursuant to a Board Resolution to file necessary applications for commencement of legal proceedings not only against the Borrower but also against their Hypothecators/Mortgagors/Guarantors. Given this position, it is clear that Section 7 application was filed in the present case by a duly authorised person on behalf of the Financial Creditor and thus objection raised by the Appellant in this regard are misconceived and hence not sustainable. Doctrine of indoor management - Tenability of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordinary sense denotes any act that has been completed, it must be assumed that the intention of the legislature is to include anything done by the lender for the benefit of the borrower in the past to be valid consideration. Hence, the only plain and natural meaning that could be deciphered would be that any act that has been completed for the benefit of the borrower would constitute consideration. In case of a conflict between the section and its illustration, the latter must give way to the former. It can thus be positively concluded that an act done for the benefit of the principal debtor in the past would constitute a valid consideration for an agreement of guarantee with the surety. The contention of the Appellant that Section 127 of the Contract Act necessitated the disbursement of loan to precede the Deed of Guarantee also does not hold good in view of a catena of judgements passed by the various Hon ble High Courts wherein it has been held that the language of Section 127 was clear and unambiguous to also cover past transactions and past promises prior to giving a guarantee or surety - thus, it is not necessary that grant of loan to the principal debtor by the creditor mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OURT] . In terms of the Laxmi Pat Surana judgment of the Hon ble Supreme Court, when the Corporate Debtor gives a guarantee in respect of a loan transaction, the right of the Financial Creditor to initiate action against the Corporate Guarantor gets triggered the moment the principal borrower commits a default. In other words, when default is committed by the principal borrower, the amount becomes due against both the principal borrower and the Corporate Guarantor and hence both become liable to pay the amount when the default is committed. Thus, the default by the principal borrower and the guarantor arises on the same date, unless, the terms of contract of guarantee provides that the liability of the guarantor would arise in terms of the Deed of Guarantee. In the present facts of the case, the Yes Bank had invoked the guarantee vide notice dated 26.08.2019 and 20.11.2019, therefore, the defaults had arisen on the issue of the demand notice as contemplated in the Deeds of Guarantee. The company petition under Section 7 which was filed against the principal borrowers has already been admitted by the Adjudicating Authority and presently undergoing CIRP. In the present case, notice h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... executed on 06.06.2017. Subsequently, on 26.06.2018, the Cash Credit Facility was enhanced to Rs.350 cr by an Addendum to the Facility Letter and in pursuance thereof a Supplemental Facility Agreement was executed on 26.06.2018. Subsequently, an Addendum to the Facility letter followed by a Supplemental Master Facility Agreement was executed on 12.03.2019 for providing enhanced Cash Credit Facility up to Rs. 450 cr. which mentioned the additional security of Corporate Guarantee to be provided by the Appellant. On 26.04.2019, the Appellant executed the purported Deed of Guarantee in favour of Yes Bank to stand guarantee for the loan facility in respect of Borrower No.1 to the extent of Rs.450 cr. On 20.11.2019, the Yes Bank invoked the Corporate Guarantee demanding the Appellant to pay Rs.450 cr. Yes Bank has claimed to have sanctioned Cash Credit Facility to Borrower No. 2 on 02.05.2017 for a term loan of Rs.100 cr and a Facility Letter issued. To execute this Cash Credit Facility, a Term Loan Agreement was entered into on 16.05.2017. A purported deed of mortgage was executed by the Appellant on 12.02.2018 in favour of the Yes Bank for a property at Kerala. Subsequently, a Short-Te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Borrowers No. 1 and 2 are forged and fabricated documents. It was vehemently contended that there is no Board resolution of the Corporate Debtor company or any authorisation issued by them to sign and execute the Deeds of Guarantee. Submission was also pressed that the signatories of the alleged Guarantee Deeds have denied to have signed the Deeds and have claimed that their signatures on the Deed of Guarantee were forged. Further, the Appellant had also filed a police complaint flagging the issue of fabrication of Deed of Guarantee. In such circumstances, reliance could not have been placed by the Adjudicating Authority without ascertaining the veracity of these documents. 5. It is also submitted that in terms of Banking Regulation Act, it is required for banks and financial institutions to obtain Deeds of Guarantee prior to disbursement of loan. There was no whisper of any Deeds of Guarantee which was required to be signed before disbursement of the loan. Moreover, in the present case there is nothing to show that the Borrowers had either agreed to provide any Deed of Guarantee in favour of Yes Bank any time before or at the time of the disbursement of loan to the Borrowers. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oard Resolution of the Financial Creditor. 8. As regards the tenability and validity of the Deeds of Guarantee, it was vehemently contended that the Appellant has raised a frivolous ground as an afterthought that the Deeds of Guarantee were forged and fabricated. In fact, these Deeds of Guarantee were executed by the Corporate Debtor in pursuance of Board Resolution passed by them on 26.03.2019. It has been pointed out that the Appellant never challenged the Deeds of Guarantee on grounds of forgery in any court of law prior to filing of Section 7 application though these were executed in 2019. In the absence of any findings by any court of competent jurisdiction holding the Deeds of Guarantee to be invalid, such contentions cannot be raised by the Corporate Debtor when IBC proceedings have been initiated against the Corporate Debtor. Even the police complaint which had been lodged by the Appellant with regard to the forgery of documents, the investigations thereon have not been taken cognisance of by any court of law. It was pointed out that the Appellant had raised baseless issues about the validity of the Deed of Guarantee with the ulterior motive of delaying the CIRP process. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Counsel of the Respondent No.1 that the contention raised by the Appellant that parallel proceedings cannot be taken up against the Principal Borrower and the Corporate Guarantor is incorrect as there is no bar on the Financial Creditor to proceed simultaneously against both. Since, both the Borrowers No.1 and 2 had defaulted in respect of the facilities extended by the Yes Bank and the Adjudicating Authority had admitted the Section 7 petition vide No. CP(IB)03/MB/2020 on finding them to be in default of debt, which was due and payable, there is sufficient ground for allowing admission of Section 7 Petition against the Corporate Debtor/Appellant having extended corporate guarantees and failed to discharge their liability post invocation of guarantees. 11. We have heard the Learned Counsel of both parties and perused the records carefully. 12. The first issue for our consideration is whether the instant Section 7 application filed by Shri Rahul Dodeja on behalf of Respondent No.1 suffered from any infirmity as it is the case of the Appellant that this instant petition has been filed by a person on the basis of Power of Attorney without any supporting Board Resolution of the Financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... einafter referred to as the MD CEO ) of YES Bank Limited, a banking company within the meaning of section 5(c) of the Banking Regulation Act, 1949 incorporated under the provisions of the Companies Act, 1956 and having its registered office at Yes Bank Towers, IFC-2, 15th Floor, Senapati Bapat Marg, Elphinstone (W), Mumbai-400013 (hereinafter referred to as the Bank which term shall include its successors). WHEREAS pursuant to the Resolution passed by the Board of Directors of the Bank on March 12, 2019, the MD CEO of the Bank has been duly authorized to manage the affairs of the Bank. AND WHEREAS for the purpose of efficiently carrying on the management of the office the various departments and branches of the Bank in India, I deem it necessary and expedient to appoint officer(s)/heads of department(s) of the Bank and to delegate to him/them such of the powers conferred on me in the manner and to the extent hereinafter specified. NOW KNOW YE AND THESE PRESENTS WITNESSETH that I, the MD CEO, in exercise and in pursuance of the powers in that behalf vested in me do hereby nominate, constitute and appoint Hitesh Darji (Emp No. HDE3845019), President Asset Reconstruction Management, S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of a power of attorney. He relied upon a judgment of the NCLAT in Palogix Infrastructure Private Limited v. ICICI Bank Limited in which it was held that an authorised person , distinct from a power of attorney holder , can file an application under Section 7 and that a power of attorney holder is not competent to file an application on behalf of a financial creditor. According to Mr. Mukherjee, the defect in filing of the application by an unauthorised person is not curable. Assuming it is curable, the Financial Creditor failed to rectify the defect within the time stipulated under Section 7 (5) of the Code, in spite of an order passed by the Adjudicating Authority on 22.01.2020 granting time to the Financial Creditor. He submitted that the person who filed the application under Section 7 of the Code is not the authorised representative of the Financial Creditor and therefore, the application was liable to be dismissed. 15. The Hon ble Supreme Court rejected the objection of the Appellant and while noticing the judgement of this Tribunal in Palogix Infrastructure Pvt. Ltd. (supra) has approved the observations made in paragraph 41. Paragraphs 13, 14 15 of the judgment are as fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en given general authorisation by the Bank with respect to all the business and affairs of the Bank, including commencement of legal proceedings before any court or tribunal with respect to any demand and filing of all necessary applications in this regard. Such authorisation, having been granted by way of a power of attorney pursuant to a resolution passed by the Bank s board of directors on 06-12-2008, does not impair Mr. Gupta s authority to file an application under Section 7 of the Code. It is therefore clear that the application has been filed by an authorised person on behalf of the Financial Creditor and the objection of the Appellants on the maintainability of the application on this ground is untenable. 16. The above judgment of the Hon ble Supreme Court clearly holds that an Application under Section 7 even if it is on the basis of Power of Attorney which is referable to the Resolution of the Board is fully maintainable. 17. In the present case, we have looked into the Power of Attorney which has been brought on record and in paragraph 20 of the Power of Attorney, there is a clear mention that Power of Attorney was executed by Director of Bank on the basis of Resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of any Corporate Guarantee in respect of Borrower No. 2 to be executed by the Appellant in the Facility Agreement prior to the Board Resolution. The first time that there is any mention of Corporate Guarantee in respect of Borrower No.2 is in the Addendum of 10.07.2019. It has also been questioned that if the Corporate Guarantee issue was a later contemplation and was reflected in the Addendum on 10.07.2019 for the first time then how could this subject figure in the Board Resolution of 26.03.2019. Moreover, as a police complaint had also been lodged on 28.02.2020 in respect of Deed of Guarantee dated 10.07.2019 signed by Mr. A.S. Anantharaman, the Adjudicating Authority ought to have taken due note of such police complaints. Much emphasis has been laid on the fact that handwriting expert in its opinion dated 01.10.2020 had also indicated forgery of signature in respect of Mr. A.S. Anantharaman. Assailing the impugned order, it has been contended that all these aspects have been completely overlooked by the Adjudicating Authority. 18. The Learned Counsel for the Respondent No.1 has rebutted the above objections by submitting that in terms of the Board Resolution of the Appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of securing the said credit limits and to take all such step as would be necessary in this regard. RESOLVED FURTHER THAT the Common Seal of the Company, if require, be affixed in presence of Mr. Ravindra G Mohite, Director and Mr. Sagar Deshpande, authorized signatory who shall countersign the same in token thereof in accordance with the Articles of Association of the Company. RESOLVED FURTHER THAT copy of the foregoing resolution certified to be true by any two Director be delivered to Bank. (Emphasis supplied) 20. This brings us to the impugned order which has dwelled upon this issue and concluded that the Doctrine of Indoor Management comes to the rescue of the Respondent. The relevant extracts of the Impugned Order are as extracted below: 7.3 As regards the board meeting this bench feels that the irregularity in this respect pointed out by the Corporate Debtor is saved by Doctrine of Indoor Management and cannot prejudice the right of the applicant Financial Creditor . 21. The Learned Counsel for the Respondent No. 1 has contended that the impugned order is justified as the Doctrine of Indoor Management is squarely applicable in this case. In support of their contention, they h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early no requirement for Yes Bank to look into the company's internal workings. The Yes Bank enjoyed the right to infer that the Board Resolution authorizing the signing of the Deeds of Guarantee was legitimately passed and that the Corporate Debtor was consequently bound by the Deed of Guarantee even if the internal requirements and procedures had not been complied with by the Corporate Debtor. 25. The Learned Counsel for the Appellant has relied on the judgement of the Hon ble Supreme Court in the matter of MRF Ltd vs Manohar Parrikar and Ors (2010)11 SCC 374 to contend that the protection of the Doctrine of Indoor Management is not available where the circumstances surrounding the contract are suspicious and requires inquiry. We are fully in agreement with the above proposition of the law as laid down by the Hon ble Apex Court. However, the facts of the case therein were clearly distinct in that the notification under challenge had been issued by the Government of Goa in violation of the Rules of Business of the Government of Goa. It has also been asserted by the Appellant that the Adjudicating Authority should have used its jurisdiction to enquire into the forgery and fabri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diction is not expected to scrutinise such opinions and rely upon the assessment contained therein and more so when the opinion has been disputed as not being an independent third-party opinion. We find no error on the part of the Adjudicating Authority to have desisted from entering into the realm of contractual disputes as it would tantamount to judicial overreach. 27. This brings us to the third issue raised by the Learned Senior Counsel of the Appellant that the Deed of Guarantee was required to be obtained before the disbursement of loan in terms of Section 127 of The Indian Contract Act,1872. Before we dwell into this issue, we may notice the said statutory provision along with the illustrations provided which is to the effect: 127. Consideration for guarantee. Anything done, or any promise made, for the benefit of the principal debtor, may be a sufficient consideration to the surety for giving the guarantee. Illustrations (a) B requests A to sell and deliver to him goods on credit. A agrees to do so, provided C will guarantee the payment of the price of the goods. C promises to guarantee the payment in consideration of A's promise to deliver the goods. This is a sufficie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sufficient and the deed of guarantee could not be avoided on such ground. 21. In view of the judgments of several High Courts mentioned hereinabove and with which I respectfully concur, the interpretation placed in the award on illustration (c) to Section 127 of the Contract Act cannot be accepted. I hold that a past consideration is a sufficient consideration for the contract of guarantee. 30. Thus, to answer the third issue, we are of the considered opinion that it is not necessary that grant of loan to the principal debtor by the creditor must be necessarily contemporaneous with the execution of Guarantee Deeds and hence the legality and subsistence of the present Deeds of Guarantee cannot be questioned on this ground. 31. This brings us to the fourth principal issue raised by the Appellant that the Deeds of Mortgage dated 12.02.2018 and Supplementary Deed of Mortgage dated 13.05.2019 were forged. It was pointed out that the Mortgage Deed had been signed by Mr. Hardik Walia who was not related to the Appellant Company nor authorised on behalf of the Appellant to execute any such Mortgage Deed and that a police case was filed in this regard. These Mortgage Deeds purportedly creat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Deed of Guarantee. Moreover, the Deeds of Mortgage contained the signature and the common seal of the Appellant besides bearing the stamp of registering authority thereby authenticating its execution. Since, neither the charge nor the modification thereof was disputed by the Appellant either with the MCA or before any appropriate legal forum at an earlier stage and the mortgage deeds were executed in furtherance of the Deed of Guarantee and the notice for invocation of the Corporate Guarantee was issued we have no reasons to disagree with the findings of the AA that the liability of Corporate Debtor cannot be done away even if their irregularity in the execution of the mortgage deed or creation of mortgage without NOC from existing mortgagee i.e. IFCI pointed out by the Corporate Debtor is believed . 34. This brings us to the last issue as to whether in the facts of the present case, Section 7 petition could have been admitted against the Appellant in their capacity as Corporate Guarantor. This question has been dealt at length by the Adjudicating Authority after noticing the guarantee clauses and the service of notice which is extracted below: 7.1 The Financial Creditor/Petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is stated to be served upon the registered office of the Corporate Debtor vide Registered Post/Speed Post and has placed copy of receipt issued by Indian Post in that relation. Hence, the contention of the Corporate Debtor that no such notice was received is without merits, in view of clause 29 of the deed providing for service of notice can be affected through registered post at address specified in schedule 1, which is saying as is stated in the notice invoking guarantee. 35. It has been contended by the Respondent that there is no bar on the Financial Creditor to proceed against the principal borrowers and the Corporate Guarantor simultaneously. It is their case that the liability of a Corporate Guarantor is coextensive with the principal borrower and therefore the Financial Creditor is at liberty to require the performance by the Guarantor to discharge its liability and obligations. 36. This issue has been squarely covered by the judgement of the Hon ble Supreme Court in Laxmi Pat Surana vs UOI (2021) 8 SCC 481. The relevant paragraphs are set out hereunder : 21. Section 7 is an enabling provision, which permits the financial creditor to initiate CIRP against a corporate deb ..... X X X X Extracts X X X X X X X X Extracts X X X X
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