Jugal Kishore Saraff vs CFM Asset Reconstruction Pvt. Ltd. & Anr.

17.04.2025: Heard learned counsel for the Appellant as well as learned counsel appearing for the Respondent. These two appeals have been filed by the Suspended Director of the Corporate Debtors challenging the order passed by NCLT Division Bench, Court No.II, Kolkata dated 08.01.2025 admitting Section 7 application filed by CFM Asset Reconstruction Pvt. Ltd. By a common order, Section 7 applications filed against the Corporate Guarantors, Machine Works (International) Limited and Motijug Agencies Ltd. in CP (IB) No.200/KB/2022 and CP (IB) No.91/KB/2022, respectively have been admitted. Aggrieved by which order these appeals have been filed.

Brief facts in both the appeals being common, we are referring to pleadings and materials placed in Company Appeal (AT) (Ins.) No.374 of 2024 for deciding both the appeals.

The Principal Borrower; M/s Ural India Ltd. (UIL) had taken financial facilities from the then Allahabad Bank. The Appellant executed a Guarantee Deed in favour of the Financial Creditor on 12.10.2010 and further a fresh guarantee was executed on 28.06.2012.

The account of the Principal Borrower was declared NPA on 12.07.2014. Notice under Section 13(2) of the SARFAESI Act was issued on 31.07.2014 to the Principal Borrower and the Guarantor demanding outstanding amount. Notice under 13(4) was also issued on 24.08.2015 and application under Section 19 of the Recovery of Debts Bankruptcy Act, 1993 was also filed by the Allahabad Bank on 29.03.2017 being O.A. No. 151 of 2017 before the DRT, Kolkata against the Principal Borrower as well as the Guarantor.

Section 7 application was filed against the Principal Borrower on 13.08.2018. The CIRP against the Principal Borrower commenced on 15.10.2019 with regard to UIL, in which, subsequently, an order for liquidation has been passed against the Principal Borrower on 15.01.2021.

An application under Section 7 has been filed by the Indian Bank in July, 2022 against both the Personal Guarantors – Machine Works (International) Limited and Motijug Agencies Ltd. Reply was filed in the Section 7 application. The debt having been assigned to CFM Asset Reconstruction Pvt. Ltd. application was filed for substitution which was allowed by the NCLT on 19.03.2024. The Adjudicating Authority heard both the parties and by impugned order dated 08.01.2025 has admitted the Section 7 application against both the Corporate Guarantors. Aggrieved by the said order these appeals have been filed by the Suspended Directors of the Corporate Guarantors.

We have heard learned counsel for the Appellant as well as learned counsel for the Financial Creditor.

Learned counsel for the Appellant challenging the order contended that present is a case where as per the Guarantee Deed between the parties dated 12.10.2010, no demand notice was issued to the Guarantors, hence, no proceedings could have been initiated under Section 7 without invoking the guarantee of the Guarantor. It is further submitted that notice dated 31.07.2014 issued under Section 13(2) is not invoking of guarantee and even if the said notice is treated as invocation of guarantee, the application filed under Section 7 in the year 2022 was barred by time.

Learned counsel for the Respondent refuting the submissions of learned counsel for the Appellant submits that in the pleadings before the Adjudicating Authority the Corporate Debtor has admitted about the invocation of the guarantee and non-raising of issue of guarantee in no manner mean that application was barred by time since the guarantee was invoked in 31.07.2014 and application under Section 7 has been filed in the year 2022. It is submitted that there being balance sheet confirmation and acknowledgment by the Principal Borrower, there shall be extension of limitation under Section 18 of the Limitation Act. OTS proposals were submitted by the Principal Borrower and the Guarantors, which action was ground to given benefit of Section 4 of the Limitation Act and application has rightly been held to be not barred by time.

We have considered the submissions of learned counsel for the parties and perused the record.

The principal submission which has been advanced by learned counsel for the Appellant is that no demand notice has been issued as per the Guarantee Deed dated 12.10.2010, hence, there never been any invocation of guarantee as per the Deed of Guarantee. Learned counsel for the Appellant has relied on judgment of this Tribunal in “Company Appeal (AT) (Ins.) No.191 of 2025, State Bank of India vs. Deepak Kumar Singhania” decided on 28.02.2025. He submitted that the terms of Guarantee Deed are decisive of the question as to whether the guarantee has been invoked as per the Guarantee Deed and in the manner in which guarantee has to be invoked. Clause 12 of the Guarantee Deed on which reliance has been placed by learned counsel for the Appellant is as follows:

When we look into the aforesaid clause, the clause contemplate that Guarantors have agreed that in event the Guarantor fails to pay the Bank's dues within one month from the date of receipt of the demand notice from the bank in pursuance of the guarantee furnished by the guarantors, the bank shall be at liberty to publish the name and addresses of the Guarantor along with details of the outstanding dues payable by the guarantors to the bank and other relevant details in the Newspaper and other publicity media.

Learned counsel for the Respondent submits that in fact the said clause was only with regard to notice for publishing the name of Guarantor as defaulter and to intimate the other authorities.

A plain reading of Clause 12 indicates the purpose and object of the said clause. We, however, are of the view that even if we accept the submission of learned counsel for the Appellant that demand has to be made by the Bank, we have to look into material for demand of payment by the Guarantor under Section 13(2) notice, which is relied by the Financial Creditor. The copy of notice dated 31.07.2014 has been brought on the record along with IA No.1789 of 2025 filed by the Respondent by which the pleadings and material which were before the Adjudicating Authority were brought on record. The notice dated 31.07.2014 has been addressed to the Principal Borrower as well as the Corporate Guarantors, which is apparent from the notice which has brought on the record on page 98 of the above IA. In the notice following has been stated.

The notice indicate that amount of outstanding dues has been mentioned in the notice and the addressees have been asked to discharge the entire liability as on date and also future interest. Learned counsel for the Appellant further referred to notice in application filed under Section 7. Affidavit in reply filed by the Corporate Debtor in CP (IB) 91 of 2022 has been filed at page 335 of IA No.1789 of 2025. It is useful to extract Para 3(c) of the Reply, which is as follows:

The Corporate Debtor came with categorical submission that guarantee was invoked on 31.07.2014, which is clear from the pleadings in Para (c). Learned counsel for the Appellant has also referred to the application which has been filed under section 7 where the Financial Creditor has come up with categorical statement that guarantee has been invoked on 31.07.2014. A copy of the application has been filed along with IA No.1789 of 2025 as Annexure A-1 where in Part IV, the Financial Creditor has pleaded following in Para 10:

When the Financial Creditor came with specific pleading that guarantee has been invoked on 31.07.2014 and Corporate Debtor has also made statement in its reply, accepting that guarantee was invoked on 31.07.2014, we fail to see any scope for submission of the Appellant that guarantee was never invoked. The judgment of this Tribunal relied by the Appellant in State Bank of India vs. Deepak Kumar Singhania in no manner can help the Appellant where this Appellate Tribunal has held that invocation has to be in terms of the Guarantee Deed. The issue which came up for consideration in the above case was whether the demand notice issued under Rule 7(1) in Form-B of Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 can be treated as notice invoking guarantee or there has to be notice or invocation prior to issuance of notice under Rule 7(1) in Form B. This Tribunal answered the submissions in the said case holding that invocation of guarantee has to be prior to issuance of notice under Rule 7(1) in Form B. Following has been held in Para 27:

Thus, the above judgment in no manner help the Appellant in facts of the present case.

Now coming to the submission of the Appellant that the application has been barred by limitation, the Adjudicating Authority in Para 3.3 has noticed sequence of events, details of balance sheet and OTS proposals received. The balance sheet from 2014-15, 2016-17, 2018-19 has been noticed of the Principal Borrower where acknowledgment of debt is there. OTS proposal submitted on 17.07.2020, 06.09.2020 have also been noticed which have been brought on record by the Respondent in the IA. After 31.07.2014 i.e. issuance of invocation notice when acknowledgment is there in the balance sheet of the Principal Borrower, the application filed against the Corporate Guarantor cannot be said to be barred by time. The Adjudicating Authority has considered the said submission and have returned finding holding that application under Section 7 is not barred by time. We fully concur with the view taken by the Adjudicating Authority that application is not barred by time.

Learned counsel for the Respondent has also relied on judgment of Hon’ble Supreme Court in “Laxmi Pat Surana vs. Union of India & Anr., (2021) 8 SCC 481”, which fully support the submission made by the Respondent.

In view of the aforesaid, we do not find any substance in the any of the submissions raised by learned counsel for the Appellant. Appeal is dismissed.