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TMI Blog2025 (1) TMI 551X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the Respondent No.1 does not absolve him from his obligations under the guarantee agreement as the Financial Creditor has not agreed to such revocation. The terms of contract agreement also clearly show that the contract was irrevocable. Whether changes in terms and conditions of the guarantee if any, would lead to novation? - HELD THAT:- In the present case both deed of guarantees grant waiver from Section 133 in case of variance, hence, such variance would not lead to discharge of the surety, but it would only be to the extent of any variance with respect to transactions subsequent to variance. The 7th working capital consortium dated 25.07.2014 reduced the existing facilities of the CD from Rs. 292 crores to Rs. 106.64 crores. The aforesaid agreement therefore benefitted both Corporate Debtor as well as Respondent No.1. The liability of the Respondent No.1 due to subsequent amendments, if any, to the agreement to the extent they are beneficial to the Respondent No.1 would remain. The Respondent No.1 would continue to be liable for outstanding amount as per the guarantee agreement or subsequent amendments, whichever is lower, but it would not lead to discharge of his liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y , for R-1 For the Appellant : Mr. Navin Pahwa, Sr. Advocate along with Mr. Karan Valecha For the Respondents : Mr. Asav Rajan Ms. Charu Trivedi , for R-1 JUDGMENT INDEVAR PANDEY , MEMBER ( T ) This order will dispose of two appeals bearing Company Appeal (AT) (Ins.) No. 689 of 2024 titled as State Bank of India Vs. Gourishankar Poddar Anr. (hereinafter referred to as the first appeal) and Company Appeal (AT) (Ins.) No. 663 of 2024 titled as Vineeta Maheshwari Vs. State Bank of India Anr. (hereinafter referred to as the second appeal). Both these appeals arise from the common order passed by the National Company Law Tribunal, Ahmedabad Bench (hereinafter to as the Adjudicating Authority ) on 23.02.2024 in CP (IB) No. 80 (AHM) 2021. 2. The first appeal has been filed under Section 61(1) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the Code ), and challenges the order dated 23.02.2024, passed by the Adjudicating Authority in CP (IB) No. 80 (AHM) 2021. The appeal has been filed by the State Bank of India (SBI), the Financial Creditor, (hereinafter referred to as the Appellant ) against Mr. Gourishankar Poddar (hereinafter referred to as Respondent No. 1 ) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions for these facilities. Additionally, a Joint Deed of Hypothecation was executed to secure the financial facilities. (ii) The aforesaid financial arrangement underwent several amendments: 26.02.2007: The First Supplemental Working Capital Consortium Agreement and the First Supplemental Joint Deed of Hypothecation were executed. 28.12.2007: The Second Supplemental Agreements were signed, increasing the loan amount. 25.11.2010: The Third Supplemental Agreements were executed, modifying the terms and increasing the facility. 05.07.2011: The Fourth Supplemental Agreements introduced further enhancements to the loan facilities. (iii) On 10.07.2013, Mr. Gourishankar Poddar, in his capacity as a director of the Corporate Debtor, executed a Deed of Guarantee ( 2013 Guarantee ) in favor of the SBI. This guarantee secured an increased loan amount of ₹292 crores, as agreed under the Sixth Supplemental Working Capital Consortium Agreement. The guarantee explicitly stated that it was: Irrevocable: It could not be withdrawn or revoked by Respondent No. 1. Unconditional: The guarantee was not contingent upon any specific conditions or disputes. Continuous: It covered all present and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On 08.03.2021, the SBI issued a Demand Notice to Mr. Gourishankar Poddar under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors) Rules, 2019. The notice sought payment of Rs 1854 crore, inclusive of interest, and was issued in compliance with the procedural requirements of the Code. (x) Not receiving a satisfactory response to the Demand Notice, the SBI filed a petition under Section 95 of the Code on 23.04.2021, seeking to initiate insolvency proceedings against Mr. Gourishankar Poddar as a personal guarantor. The petition outlined Mr. Gourishankar Poddar s obligations under the guarantees and the outstanding debt owed by the Corporate Debtor. (xi) The Adjudicating Authority dismissed the SBI s Section 95 petition on citing alleged revocation of the guarantees by Mr. Gourishankar Poddar and further invocation of the guarantees being time-barred. (xii) The SBI has therefore filed the first appeal bearing Company Appeal (AT) (Ins.) No. 689 of 2024 seeking quashing of impugned order. (xiii) The Adjudicating Authority in the para 13 (k) of the impugned order observed the following: k. On perusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct does not discharge the guarantor s liability, ensuring the appellant s ability to enforce the guarantee against Respondent No. 1 irrespective of subsequent developments. 9. The appellant further contends that the approval of the resolution plan for the Corporate Debtor on 05.10.2021 does not, by itself, discharge the liability of Respondent No. 1 as a personal guarantor. The Hon ble Supreme Court, in State Bank of India v. V. Ramakrishnan [(2018) 17 SCC 394], clarified that Section 31 of the Code, which provides for the binding nature of a resolution plan on all stakeholders, does not extinguish the liabilities of personal guarantors. Moreover, the resolution plan approved in the present case explicitly preserves the rights of the appellant to proceed against the personal guarantors for any remaining dues. This principle is supported by the Judgment of Hon ble Supreme Court in Maharashtra State Electricity Board v. Official Liquidator [1982) 3 SCC 358], wherein it was held that the discharge of the principal debtor by operation of law does not absolve the guarantor of liability. 10. The Counsel for appellant submitted that Respondent No. 1 s attempts to revoke the guarantee thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guarantee are enforceable and binding. In the present case, any alleged variation in the terms of the credit facilities was undertaken with the knowledge and consent of Respondent No. 1 and does not absolve him of his obligations. 13. Finally, the appellant submits that the guarantees executed by Respondent No. 1 are in the nature of continuing guarantees, as defined under Clause 26 of the 2014 Deed of Guarantee. A continuing guarantee, by its very nature, remains in force until the obligations guaranteed are fully discharged. Ld. Counsel for the appellant cited the decision of Hon ble Supreme Court, in Anirudhan v. Thomco s Bank Ltd. [AIR 1963 SC 746], wherein it was held that a guarantor s liability persists as long as the underlying debt remains unpaid. In the present case, the Deeds of Guarantee explicitly states that they will remain binding, until the entire debt owed by the Corporate Debtor is repaid in full. Consequently, Respondent No. 1 s obligations under the guarantees continue unabated. 14. In light of the above submissions, the Ld. Counsel for appellant prays that this Tribunal be pleased to: a) Set aside the impugned order dated 23.02.2024 passed by the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Guarantor s intention to terminate his liability for future transactions. The law under Section 130 of the Indian Contract Act, 1872 allows for the revocation of continuing guarantees, and the Hon ble Supreme Court in Margaret Lalita v. Indo Commercial Bank Limited [AIR 1979 SC 102] has upheld that such revocations relieve guarantors of future obligations. The Financial Creditor s failure to respond does not invalidate the Guarantor s right to revoke the guarantees, effectively terminating any future liability. 19. The counsel for the Respondent submitted that the Financial Creditor s claims are barred by limitation. As per Article 55 of the Limitation Act, 1963, the limitation period for enforcing a guarantee is three years from the date of breach or revocation. Here, the guarantees were revoked on 24.03.2014, starting the limitation period. The limitation period commenced on 24.03.2014 and expired on 24.03.2017. The Financial Creditor initiated proceedings on 09.04.2021, well beyond the prescribed period, making their claims legally untenable. The Hon ble Supreme Court in Margaret Lalita v. Indo Commercial Bank Limited [AIR 1979 SC 102] ruled that such limitation periods a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Respondent prays that this Tribunal be pleased to: a) Dismiss the appeal filed by the Financial Creditor on the grounds that the claims are barred by limitation and invalid under applicable law. b) Declare the 2014 Guarantee as unenforceable due to misrepresentation, coercion, and procedural irregularities. Analysis and Findings 25. We have heard the learned counsels of both the sides in detail and examined the documents on record. The parties have also submitted their written submission which have been duly considered. 26. The key issues to be decided in the instant matter relates to: (i) Whether revocation of guarantee by the personal guarantor is valid? (ii) Whether changes in terms and conditions of the guarantee if any, would lead to novation? (iii) Whether the CIRP proceedings against the guarantor are maintainable on the grounds of limitation? We examine these issues one by one. 27. Regarding the first issue, Adjudicating Authority has held that the Respondent No.1 has resigned from the position of the Director of the CD on 06.03.2014 which was accepted by the Board on 18.03.2014. He wrote to the SBI and its groups of Banks stating that he has resigned seeking relief of gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd future transactions and hence attracts applicability of Section 129 and 130 of the Act of 1872. Clause 8 reads as follows: The Guarantee herein contained is a continuing one for all amounts advanced. To be advanced by the said Banks to the Borrowers in respect of or under the said Facilities as also for all interest, costs and other money which from time to time become due and payable... (iv) Clause 11 reiterates the irrevocability and enforceability of the guarantee by stating as follows: The Guarantee shall be irrevocable and enforceable against the Guarantors notwithstanding any dispute between the said Banks and the Borrower. (v) Clause 12 of the 2013 Guarantee further provides that any acknowledgment of debt by the Corporate Debtor shall be considered to be an acknowledgment by Respondent No. 1 and other guarantors. Clause 12 reads as follows: The Guarantors affirm, confirm and declare that any balance confirmation and/or acknowledgment of debt and/or admission of liability given or promise or part payment made by the Borrower or the authorized agent of the Borrower to the said Banks shall be deemed to have been made and/or given by or on behalf of the Guarantors themselves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es offered now/ sanctioned and /or extended further financial assistance to the borrower from time to time, without notice to the Guarantor(s) and all the terms and conditions stated herein shall continue to be applicable for such enhanced/ further limits and this guarantee shall remain a continuing one for all the amounts due and will not be affected or vitiated in any way whatsoever but will remain in full force and effect and binding on the Guarantors. 30. We note from the aforesaid clauses of the 2013 Guarantee that: a. The guarantee is irrevocable, unconditional and continuous; b. Respondent No. I would be liable for all present and future transactions between Appellant and Corporate Debtor irrespective of any variation; and c. Any acknowledgment of debt on part of the Corporate Debtor shall be considered an acknowledgment of debt on part of Respondent No. 1 for the purposes of Section 18 and 19 of the Act of 1963. 31. On 29.03.2014, Respondent No. I executed another Deed of Guarantee ('2014 Guarantee ). The relevant clauses of the Guarantee are extracted below: (i) Clause 5 of the 2014 Guarantee permits the Lenders to vary, alter or modify the terms and conditions of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the position of Chairman/ Managing Director to be effective from 31.03.2014. In response to the aforementioned letter, the Appellant sent a communication dated 12.03.2014 to Respondent No. 1 contesting the resignation of the Respondent No. 1 as the same constituted a breach of the undertaking dated 07.11.2013 issued to the CDR Cell. Relevant portion of the said Letter reads as under: 2. Your liability as a personal Guarantor will continue and as per the terms of Deed of Guarantee executed by you on various dates, in favour of the Consortium lenders, with State Bank of India as lead Bank... 3. Please note that the said Company's account is NPA as on 30.11.2013 and restructuring under CDR Mechanism is under process. As on 31.12.2013, the exposure to the Consortium stands at Rs. 600 crores (Approximately). Resignation from the post of Chairman and Managing Director does not absolve you of your liabilities as a personal Guarantor and the Bank at its discretion may initiate any suitable action against you, if the situation warrants so. ( Emphasis supplied ) 35. The Appellant explicitly notified Respondent No. 1 that his liability as a personal guarantor would not be absolved and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns under which it arises, is entirely governed by the terms stipulated in the contract of guarantee. In this regard, reliance is placed on the judgment of the Hon'ble Supreme Court in Syndicate Bank v. Channaveerappa Beleri and others [(2006)11 SCC 506], relevant para 9 is extracted below: 9. A guarantor's liability depends upon the terms of his contract. A continuing guarantee is different from an ordinary guarantee. There is also a difference between a guarantee which stipulates that the guarantor is liable to pay only on a demand by the creditor, and a guarantee which does not contain such a condition. Further, depending on the terms of guarantee, the liability of a guarantor may be limited to a particular sum, instead of the liability being to the same extent as that of the principal debtor. The liability to pay may arise, on the principal debtor and guarantor, at the same time or at different points of time. A claim may even be time-barred against the principal debtor, but still enforceable against the guarantor. The parties may agree that the liability of a guarantor shall arise at a later point of time than that of the principal debtor. We have referred to these aspe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et Lalita v. Indo Commercial Bank Limited [AIR 1979 SC 102]. It is the argument of the Respondent that as decided in the aforesaid case the liability of the guarantor is limited to transactions prior to the revocation of the guarantee. This case emphasized that a guarantor can revoke a continuing guarantee for future transactions, but remains liable for those prior to revocation. However, in the present case, the respondent executed a subsequent irrevocable and unconditional guarantee on 29.03.2014, superseding the earlier guarantee. This 2014 Guarantee clearly waived any right to unilateral revocation, binding the guarantor until all liabilities of the corporate debtor were settled. The aforesaid precedent is distinguishable because the 2014 Guarantee is irrevocable and such right has been explicitly granted by the Respondent No.1. 40. We note that the guarantee as is evident from Clause 2, 8, 11 and 12 of the 2013 Guarantee and Clause 5 and 14 of the 2014 Guarantee was intended to be irrevocable and continuous in nature and thus in accordance with the Syndicate Bank Judgment, the guarantee was intended to be applicable to all subsequent transactions as well. 41. It is clear from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut exhausting its remedies against the principal borrower. Chapter VIII of the Contract Act contains provisions regarding indemnity and guarantee. Section 126 is relevant for our purposes, which reads thus: 126. Contract of guarantee , surety , principal debtor and creditor . A contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the surety ; the person in respect of whose default the guarantee is given is called the principal debtor , and the person to whom the guarantee is given is called the creditor . A guarantee may be either oral or written. A surety is also known as a guarantor. Section 128 reads thus: 128. Surety s liability. The liability of the surety is co- extensive with that of the principal debtor, unless it is otherwise provided by the contract. It lays down the fundamental principle that the liability of the surety is co-extensive with that of the principal debtor unless otherwise provided by the contract. Sections 133 to 139 deal with the discharge of surety, which read thus: 133.Discharge of surety by variance in terms of contract. Any variance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, the legal consequence of which is the discharge of the principal debtor, the surety stands discharged. Section 135 is based on the same principle on which Section 133 is based. If there is a contract between the creditor and the principal debtor by which the creditor makes a composition or promise with the principal debtor, or gives time to the principal debtor or agrees not to sue the principal debtor, it amounts to discharge of the surety provided the surety has not assented to such a contract. If the creditor contracts with a third party to give time to the principal debtor, and when the principal debtor is not a party to such a contract, the surety is not discharged. Section 137 lays down a settled principle that it is not necessary for the creditor to first sue the principal debtor or adopt a remedy against him. If the creditor omits to do that, unless there is a contract to the contrary, it will not amount to discharge of the surety. This means that without proceeding to recover the debt against the principal debtor, the creditor can proceed against the surety unless there is a contract to the contrary. Even if the creditor discharges one surety, it will not amount to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antor for making payment of Rs. 998.52 crores including interest as on 31.12.2017 and further interest, penal interest plus costs etc. from 01.01.2018 within 7 days from the date of the notice. The default occurred on 25.01.2018 i.e. 7 days from the date of notice. 50. Thereafter, the Appellant had on 15.02.2018, merely a month after the amounts became due filed Original Application No. 185 of 2018 titled State Bank of India v. M/s Raj Rayon Industries Ors. before the Hon ble Debt Recovery Tribunal-II, Ahmedabad, which is still pending adjudication. Thus, in accordance with Section 14 of the Limitation Act, 1963, the time spent in pursuing the said bona fide proceedings would be excluded at the time of computation of limitation. 51. A CIRP petition bearing CP (IB) No. 350/7/NCLT/AHM/2019 was filed against the Corporate Debtor M/s Raj Rayon Industries Ltd. by the appellant on 20.05.2019 and the same was admitted on 23.01.2020. While admitting the petition adjudicating Authority took cognizance of balance confirmation letter issued by M/s Raj Rayon Industries on 08.08.2016 to the appellant in this case (SBI). The last transaction in the account was on 03.02.2017 and therefore the Adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided by Clause 26 of 2014 agreement. This aspect has also been endorsed by Hon ble Courts as seen in previous paragraphs. The Guarantor issued the demand notice after the CIRP proceeding against CD was admitted on 23.01.2020. This meant that the concerned Court has acknowledged the debt. Thereafter, a specific demand notice in terms of provisions of IBC was issued on 08.03.2021 which was well within the limitation period. The appellant filed petition under Section 95 read with Rule 7(2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process of Personal Guarantors to Corporate Debtor) Rules, 2019 on 24.03.2021. 57. We further note that the period of limitation against the guarantor starts only when a demand is raised from the guarantor specifically. In case of continued payments by a principal borrower, no demand would be raised against a guarantor and thus limitation does not commence. Reliance is placed on the judgment of this Appellate Tribunal in Pooja Ramesh Singh v. State Bank of India and Anr. 2023 SCC OnLine NCLAT 193 and in Archana Deepak Wani vs Allahabad Bank 2023 SCC OnLine NCLAT 192 whereby it has been held that limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Adjudicating Authority while rejecting the petition filed by Respondent No.1 has made adverse observations, against the Appellant and held that the conduct of the Appellant as Resolution Professional needs to be inquired by IBBI [Para 13(k)], as being bad in law. The Appellant therefore challenges the impugned order only to the extent of making adverse observations against the Appellant and holding that the conduct of Appellant as Resolution Professional needs to be inquired. 62. The counsel further submitted that in furtherance of the observations made by the Hon ble Adjudicating Authority, the Appellant has not received any notice from IBBI. 63. It is the submission of the Appellant that Hon'ble Adjudicating Authority has erred in making adverse observations against the Appellant by holding that the conduct of Appellant as Resolution Professional needs to be inquired, without hearing the Resolution Professional and without calling for the explanation from the Resolution Professional. The impugned order to that extent therefore is liable to be quashed and set aside on this ground alone. 64. The Appellant submits that the principles of natural justice were not followed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellate Tribunal expunged the remarks against the RP wherein the Adjudicating Authority had not taken into consideration the submissions of RP and passed the orders with adverse remarks. Submissions of Respondent 70. The counsel for Respondent No.1 submitted at the outset, that he is not contesting the appeal to the extent of the observations made against the Appellant and issuance of directions to the IBBI as the captioned appeal is not adversarial and is between the Hon ble Tribunal and the Appellant. 71. The counsel submitted that he needs to clarify the Respondent No. 1 s position with respect to the non-signing of the Revival Letter dated 06.02.2016. In accordance with Clause 26 of the 2013 Guarantee, Respondent No. 2 has waived his right to be granted any notice of extension/ enhancement of the facilities availed by the Corporate Debtor. The implication thus is clear that as the guarantor was not required to even be issued a notice of enhancement, the question of executing the same would not arise and the Deeds of Guarantee executed previously would be deemed to continue. Clause 26 of the 2013 Guarantee reads as under: 26. The Guarantors agree that the said Banks shall be at l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the aforesaid letter is valid even without intimation to guarantor. There is no requirement of signature in terms of the guarantee agreement. 78. We note from the aforesaid event list that the appellant has given categorical disclaimer that the aforesaid table is based on the documents submitted by State Bank of India/ Respondent No. 1, but no cognizance of the disclaimer was taken by the Adjudicating Authority. 79. We have also noted that the Adjudicating Authority did not give any opportunity to the appellant to clarify the position. The principles of natural justice were not followed by the Adjudicating Authority in this case and very critical comments were made against the RP, which would seriously hamper her career progression as RP. Further, the comments were communicated to the IBBI for taking further action against the appellant. 80. Based on the above we are of the view that the mistake, if any on part of RP was not deliberate or malafide. The Appellant has copied the list of events from the application filed by the SBI with given due disclaimer in the table giving the source of information. The Adjudicating Authority was free to seek clarifications from appellant regard ..... X X X X Extracts X X X X X X X X Extracts X X X X
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