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TMI Blog2024 (11) TMI 1287X X X X Extracts X X X X X X X X Extracts X X X X ..... xcluding Appellants herein. Aggrieved by the Order dated 01.07.2024, this Appeal has been filed. 2. Brief facts of the case necessary to be noticed for deciding the Appeal are : i. Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, M/s. Ram Hari Auto Private Ltd., commenced on an Application filed by an Operational Creditor vide Order dated 14.02.2020. ii. Public announcement was made on 17.02.2020 in which 02.03.2020 was the last date for submission of the claims. iii. Interim Resolution Professional (IRP) constituted the CoC of only Unsecured Financial Creditors and held first CoC Meeting on 16.03.2020. iv. Central Bank of India filed its claim of Rs.12,15,30,369/- as Secured Creditors on 09.03.2020. v. On 19.03.2020, IRP informed Central Bank of India about admission of its claim and its eligibility to become Member of the CoC. vi. The 2nd CoC Meeting was convened on 28.05.2020. Central Bank of India was conveyed that its vote share is 51.37%. Central Bank of India vide email dated 22.05.2020 and 24.05.2020, asked several information from the IRP regarding admission of the claims of Unsecured Creditors. vii. Resolution Professional (RP) v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. It is submitted that even though Appellants have not made any payment towards discharge of the guarantee, but in event the Bank proceeded to dispose of Appellant's mortgage property, whether by Auction or otherwise, the same shall continue fulfilment of performance by the Appellant in repayment of the loan. Appellant has created mortgage of the immovable assets to secure the loan of the Corporate Debtor. By such performance, the Appellant has assumed the Creditors rights against the Corporate Debtor. In any event of the matter, the Appellants claim ought to have been recognised as contingent or other Creditors. Learned Counsel further submitted that in the Application filed by the Central Bank of India, Appellants were not heard and the Order passed by the Adjudicating Authority is in violation of principle of natural justice. 5. Learned Counsel for the Central Bank of India, refuting the submission of the Counsel for the Appellant contends that Appellant who had given Personal Guarantee to the loan obtained by the Corporate Debtor from the Central Bank of India, have not paid any amount, even though Decree has been issued by the DRT, hence they cannot claim to become Financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been obtained by the Applicant Bank can be made part of the CoC. The Ld. Counsel relied upon Section 140 of the Indian Contract Act, 1872, which states as under: 140. Rights of surety on payment or performance - Where a guaranteed debt has become due, or default of the principal debtor to perform a guaranteed duty has taken place, the surety upon payment or performance of all that he is liable for, is invested with all the rights which the creditor had against the principal debtor." ( Emphasis placed ) 9. To answer the question as to whether the Appellant has been treated the Financial Creditor of the Corporate Debtor on basis of Personal Guarantee extended by them to the Central Bank of India, we need to look into the Statutory Scheme of the IBC. Section 3(6) defines the claim which means right to payment, which is as follows : "3. Definitions. In this Code, unless the context otherwise requires , - (6) "claim" means - (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion; (i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause;" 12. When we look into the provisions of Section 5(8)(i), the amount of any liability in respect of any of the guarantee or indemnity is also a Financial Debt. 13. The plain language of Section 5(8)(i) clearly indicates that any of the Guarantee or indemnity for any of the items referred to in sub-Clauses (a) to (f) may also be Financial Debt. In event, there is any "amount of any liability in respect of". Thus, by giving Guarantee to a transaction referred to in (a) to (i) will not be covered by Financial Debt unless there is any liability in respect of the Guarantee. Thus, Guarantee given by a Guarantor plain and simple cannot be basis for a Financial Debt, unless there is an amount of any liability in respect of such Guarantee. Thus, a Financial Debt will arise only when in respect to Guarantee as covered by Section 5(8)(i) any liability has arisen which is the Statutory Scheme of the IBC. The above can be explained by an illustration. A Corporate Debtor has been extended financial facility of an amount of Rs.10 Cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has made performance of all that is liable for cannot be accepted. The Guarantor is liable for payment of the debt of the Bank, hence Appellant cannot contend that he has any right of payment against the Principal Borrower so that its claim may be accepted as Financial Debt. 16. Now we come to the Judgment relied by the Counsel for the Appellant in support of his submissions. Counsel for the Appellant has relied on the Judgment of the Hon'ble Supreme Court in `Amrit Lal Govardhan Lalan (Dead) by his Legal Representative' Vs. `State Bank of Travancore & Ors.', reported in (1968) SCC OnLine SC 246. Hon'ble Supreme Court in the above case had occasion to consider Section 140 of the Indian Contract Act. Hon'ble Supreme Court has held that surety is therefore on payment of the amount due by the principal debtor entitled to be put in the same position in which the Creditors is in relation to the principal debtor. In Para 7 while considering Section 140 of the Indian Contract Act following was held: "...In this connection it is necessary to consider the provisions of Section 140 of the Indian Contract Act, 1872 which states: "Where a guaranteed debt has become due, or default of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asion to consider Section 141 of the Indian Contract Act which Section 141 is not attracted in the facts of the present case. The above Judgment in no manner supports the submission of the Appellant. 18. Another Judgment on which reliance has been placed is the Judgment of the Calcutta High Court in the matter of `Sm. Mamta Ghosh' Vs. `United Industrial Bank Limited & Ors.' reported in (1987) SCC OnLine Cal 72 where the Calcutta High Court held that even before payment of the debt by the Guarantor to the Creditor Guarantor by invoking the equitable doctrine of subrogation can apply for temporary injunction. In the above case, the Plaintiff Bank had filed suit against the Defendants praying for declaration that the land and properties are security against the loan payment by the Defendants No. 1 to 3. In the above suit, Guarantor Defendant No. 4 filed the Petition for temporary injunction restraining the Defendant No. 3 from disposing of his personal properties till the disposal of the Suit. Trial Court rejected the Petition for temporary injunction holding that Defendant No. 4 had no right to claim injunction as prayed. In the above context while affirming the rejection of tempora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ode of Civil Procedure, to protect his interest and in the ends of justice." The above Judgment has no Application in the facts of the present case. 21. In view of the forgoing discussions, we are of the view that Personal Guarantors who have not made any payment in discharge of their Guarantee given to the Central Bank of India cannot be accepted as Financial Creditor of the Corporate Debtor, nor any voting share can be allocated to them in the CIRP of the Corporate Debtor. We do not find any error in the Order of the Adjudicating Authority holding that Appellants who have not made any payment to the Creditor cannot be treated to be a Financial Creditor. There is no infirmity in the Order passed by the Adjudicating Authority allowing I.A. No. 294/2020 filed by the Bank. 22. In so far as the submissions of the Counsel for the Appellant that in any view of the matter, Appellant's claim shall be treated as contingent claim. We only observe that in event any amount is recovered from the Appellant before the close of the CIRP, it is always open for the Appellant to bring the such material before the RP to be placed before the CoC to take a decision regarding contingent claim of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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