M/s. Indian Renewable Energy Development Agency Limited vs M/s. Sai Spurthi Power Pvt. Ltd.

The Financial Creditor (FC) i.e., IREDA, vide its letter dated 05.12.2007 sanctioned a term loan of Rs.13,87,50,000/- to the Principal Borrower i.e., Bhadragiri Power Pvt. Ltd. for setting up of 3 MW (2 Nos. x 1.5 MW) Gondi Small Hydro Project in Karnataka (Project No.1823).

It is stated that in terms of Clause 7(iii) of Annexure-I r/w Clause 4 of Annexure-III of the sanction letter, the said loan was to be secured by way of the Corporate Guarantee to be provided by the Corporate Debtor. The Board of Directors of Corporate Debtor (CD) vide a Board Resolution dated 10.12.2007 guaranteed the payment of loan advanced by the Financial Creditor to the Borrower. The CD was holding 4,00,000 Equity Shares of the Borrower Company in FY 2007-08. Subsequently, a Loan Agreement dated 12.03.2008 was executed between the Financial Creditor and the Borrower.

Further, a Deed of Guarantee dated 26.03.2008 was executed by the CD in favour of IREDA, which was unconditional and irrevocable guarantee, whereby the CD inter alia guaranteed the due repayment of the loan amount of Rs.1387.50 Lakhs together with the applicable interest and other charges and further guaranteed that in the event of default on the part of Borrower in payment/repayment of loan amount, the CD would upon demand by the FC forthwith pay all the amounts which would become due and payable by the Borrower under the Loan Agreement. The CD also submitted two undertakings. The guarantee as well as these two undertakings, are continuing ones and thus the CD continues to be liable for the debts due and payable in terms of Loan Agreement dated 12.03.2008.

A total amount of Rs.13,59,30,259/- under the Loan Agreement was disbursed to the Borrower on various dates between March, 2008 to December, 2009. Subsequently, the FC, vide its letter dt.30.12.2010, rescheduled the period for loan repayment, and extended the time period for such repayment upto 30.09.2021. Besides, IREDA also agreed to fund the interest due and payable by the Borrower on the loan amount for the period from June, 2010 upto September, 2011 i.e., the aggregate amount of Rs.2,97,23,000/-.

The account of the Borrower was declared Non-Performing Assets (NPA) by the FC on 31.03.2012. The loan facility, was thereafter, recalled by the FC vide a recall notice dated 09 / 13.08.2012, with a copy marked to all the guarantors including the Corporate Debtor, demanding an amount of Rs.18,24,69,308/- fallen due as on 30.06.2012. However, no response was received from the Corporate Debtor.

It is stated that the Principal Borrower, vide its letters dated 31.08.2012 and 18.01.2013, acknowledged its liability to pay the loan amount and requested for time up to September, 2013 for repayment of the financial debt which was rejected by the FC vide letter dated 12.02.2013.

The FC vide letter dated 13.06.2014 requested the CD to impress upon the Borrower to clear their outstanding dues and further notified the CD that in case of non-payment, the FC would be constrained to invoke the Corporate Guarantee provided by the CD.

Further, the FC, vide its letter dated 22.10.2014, with a copy marked to Greenko Group (Holding Company of the Corporate Debtor herein), warned the Principal Borrower that on failure to repay the loan amount, it would be notified as a non-cooperative borrower in accordance with the RBI Circular.

The CD vide letter dated 14.11.2014, with malafide intentions, disputed the validity of the corporate guarantee on frivolous ground that there was no record of the Minutes of Meeting of the Board of Directors or the Shareholders of Company approving the issue of Corporate Guarantee given by them and further stated that the Borrower was nowhere related to them. A perusal of the statutory records of the Borrower as well as the CD would reveal that as on 31.03.2018, the CD was holding 17,37,000 Equity Shares (27.42%) of the Borrower Company. Even during FY 2014-15, CD was holding 7,50,000 Equity Shares of Borrower Company. Further, in the Balance Sheet for FY 2014-15, 2018-19 and 2020-2021, the CD has admitted the Corporate Guarantee as a contingent liability.

As the Borrower failed to pay the outstanding loan, the FC issued a Demand Notice dated 24.02.2015 to the Guarantors including the CD calling upon them to pay to the FC an amount of Rs.25,99,05,876/- due as on 31.12.2014. However, no response was received from the CD. The Greenko Group in its response dated 10.04.2015 to FC’s email dated 09.04.2015 assured the FC to extend their cooperation in recovering their dues from the Borrower.

The CD filed Suit No. OS/147/2018 titled Sai Spurthi Power Pvt. Ltd. vs. Bhadragiri Power Pvt. Ltd. & Anr. before the Hyderabad City Civil Court seeking injunction against invocation of Corporate Guarantee. However, the Hon’ble Court refused to grand any ad-interim injunction.

The Financial Creditor, issued a notice dated 31.07.2018 u/s 13(2) of SARFAESI Act to the Borrower and the Guarantors including the CD demanding an amount of Rs.43,20,49,144/- due and payable as on 30.06.2018. In response, the Borrower vide its letter dated 01.10.2018 admitted its liability to repay the outstanding debt and undertook to commence repayment of dues from April / May, 2019. On failure of the Borrower to pay the outstanding debt, the FC proceeded to issue a notice dated 19.02.2019 u/s 13(4) of SARFAESI Act to the Borrower and the Guarantors.

It is stated that the Borrower, vide its letter dated 21.10.2019, while admitting its liability, proposed a One Time Settlement (OTS) to the FC, thereby offering to pay only the Principal amount which was rejected by the FC vide its letter dated 18.03.2020.

Thereafter, the FC issued another Demand Notice dated 11.05.2020 to the Borrower, with a copy marked to all the Guarantors and later issued a separate notice dt.27.05.2020 to the Guarantors to repay the financial debt. In response, the CD vide its letter dated 11.06.2020 denied the validity and subsistence of the Corporate Guarantee on false and frivolous grounds.

The FC vide its letter dated 08.10.2020 duly responded to the letter dated 11.06.2020 dismissing the frivolous objections of the CD. The CD vide letter dated 23.10.2020, once again making baseless submission which were denied by FC vide letter dated 24.12.2020.

It is stated that vide the Deed of Guarantee dated 26.03.2008, the CD has guaranteed to repay the loan amount in case of default on the part of the Financial Creditor in repayment of its debt. Therefore, the CD is in default and is liable to repay the financial debt due to the FC.

However, no payment has been made either by the Borrower or the CD even after issuance of Demand Notices dated 11.05.2020 or 27.05.2020 till date. Accordingly, as on 31.12.2021, the total financial debt due and payable under the loan granted to Borrower is Rs.71,88,32,068/-, which is payable by the Corporate Debtor. Hence, the Petition.

In support of its case, the Petitioner inter alia filed the following:

Copy of the sanction letter dated 05.12.2007;

Copy of Loan Agreement dated 12.03.2008 executed between the Financial Creditor and Borrower;

Copy of Deed of Guarantee dated 26.03.2008 executed by the Corporate Debtor;

Copy of Undertaking dated 26.03.2008 for meeting the shortfall in the project by M/s. Sai Spurthi Power Pvt. Ltd.;

Copy of Undertaking dated 26.03.2008 for non-disposal / pledge of shares by M/s. Sai Spurthi Power Pvt. Ltd.;

Letter of Amendment dated 27.10.2008;

Letter dated 30.12.2010 of reschedulement of loan and sanction of funding the interest due for the period from June, 2010 to September, 2011.

Copy of recall notice dated 09 / 13.08.2012;

Copy of relevant pages of Balance Sheet of the CD for FY 2014-15, 2018-19 and 2020-2021;

Copy of notices dated 31.07.2018 and 19.02.2019 issued under SARFAESI Act, 2002;

Copy of the demand notice dated 11.05.2020.

It is submitted that the Notice to Guarantors dated 24.02.2015 was issued by the Petitioner to the Respondent by invoking Clause 21 of the ‘claimed’ Deed of Guarantee dated 26.03.2008 (hereinafter ‘Alleged Corporate Guarantee’) and demand for payment of an alleged financial debt of Rs.25,99,05,876/- along with interest was made by Petitioner, thus the limitation starts from 24.02.2015. Therefore, the present Petition ought to have been filed by the Petitioner within 3 years from the date of expiry of stipulated period of 21 days in the said guarantee invocation notice i.e., any time prior to 17.03.2018.

It is stated that the Petitioner had issued Notice dated 09 / 13.08.2012 to Bhadragiri Power Pvt. Ltd. i.e., the Borrower recalling the entire financial debt of Rs.18,24,69,308/- which was outstanding as on 30.06.2012. Further, in para 8 of the guarantee invocation notice dated 24.02.2015 sent by Petitioner to Respondent, the Petitioner has stated that it had issued a loan recall notice to the Borrower on 09 / 13.08.2012. It was in this context that the Petitioner proceeded to invoke the Alleged Corporate Guarantee vide its notice dt.24.02.2015.

The Respondent received a notice dated 22.10.2014 bearing Ref. No. 221/2445/SHP/2007-IREDA/3787 (‘October 2014 Notice’), which averred that Borrower had approached the Petitioner seeking financial assistance to start a 3 MW Power Project, being the Gondli Small Hydro Project on Bhadravathi River in Shimoga Dist, Karnataka and that the Petitioner had sanctioned the loan amount of Rs.1387.50 Lakhs to the Borrower. It further alleged that the Respondent herein had stood as security as a corporate guarantor for the repayment of the aforesaid loan amount.

There are no documents that are a part of the Respondent’s records to approve the execution of the Alleged Corporate Guarantee in favour of the Petitioner, including the audited financial statements. It was only after receipt of October 2014 Notice, did the Respondents disclose in its financial statements as per the accounting practices, and even thereunder, Respondent disputed the existence of the said Guarantee.

Consequently, Respondent vide reply dated 14.11.2014 to the October 2014 Notice denied any liability under the Alleged Corporate Guarantee and categorically explained to the Petitioner that there were no records of Minutes of authorisation of Respondent’s Board of Directors nor any approval from its lenders that authorised the same, and thus the said Guarantee is ultra-vires to Articles of Association of the Respondent.

Despite receiving clear reply, the Petitioner issued Notice to Guarantor dated 24.02.2015, wherein, the Petitioner invoked Alleged Corporate Guarantee against all the Guarantors including the Respondent herein, demanding all to pay an amount of Rs.25,99,05,876/- due from the Borrower as on 31.12.2014 along with interest and other monies.

Consequent thereto, the Respondent filed a Civil Suit bearing OS No. 147/2018 before the City Civil Court, Hyderabad against the Borrower and Petitioner inter alia seeking a permanent injunction restraining the Plaintiff from invoking the Alleged Corporate Guarantee, wherein, the Petitioner in its reply has clearly admitted that it has issued a Notice to the Respondent dt.24.02.2015 for invoking the Corporate Guarantee. The proceedings before it are still pending.

The Petitioner kept making the same allegations vide its Notices dated 08.10.2020 and 24.10.2020, and in response, the Respondent vide its letters dated 23.10.2020 and 15.01.2021 reiterated that the Alleged Corporate Guarantee is not legal and valid against the Respondent and that the claim is time-barred.

Without prejudice to other contentions, as per Clause 3 of the Alleged Corporate Guarantee, the Respondent would be liable to pay the amounts due and payable by the Borrower on demand by the Petitioner. The Hon’ble Apex Court in Syndicate Bank vs. Channaveerappa Beleri & Ors. (2006) 11 SCC 506 had categorically held that computation of the period of limitation in respect of a guarantor commences from the date the creditor makes a claim against the guarantor which, in the instant case, was 24.02.2015.

Therefore, a joint reading of Clauses 3 and 21 of the Alleged Corporate Guarantee, observation of the Hon’ble Apex Court, Notice to Guarantor dt.24.02.2015 and consistent stand taken by the Respondent, clearly reveal that the Petition is barred by limitation as it is filed after nearly 7 years from the date of expiry of stipulated period.

As regards the Board Resolution dated 10.12.2007 of the Respondent placed at Annexure A-4 of the CP, the Respondent reiterated that the same is false and is a forged document. Additionally, the Respondent had availed term loans of Rs.15 Crore each from SBI & SBH, wherein, its terms stipulate that the Respondent shall not without such Bank’s permission in writing undertake guarantee obligations on behalf of any other Company. Further, the absence of the Common Seal on the said Deed predicates that the same was not executed by the Respondent. Therefore, it is in violation of Article 85 of the Articles of Association and cannot bind the Respondent. In this regard, it relied upon Rajendra Nath Dutta & Ors. vs. Shibendra Nath Mukherjee & Ors. (1981) SCC Online Cal 229 of the Hon’ble Calcutta High Court.

Being the major stakeholder with over 70% of the funds invested, no action was taken by Petitioner inspite of huge delays in implementing the Project. As stated supra, the Petitioner issued Notice dated 09 / 13.08.2012 calling the Borrower to repay the entire financial debt of Rs.18,24,69,308/- which had fallen due and was outstanding as on 30.06.2012. It is stated that at no stage since the issue of Borrower Facility Recall Notice in 2012, has the Petitioner sought to formally withdraw the said Notice.

Relying on the decision of Hon’ble Apex Court in IBA Health (I) Pvt. Ltd. vs. Info-Drive Systems Sdn. Bhd. (2010) 10 SCC 533, it is stated that pending adjudication of the Civil Suit which challenges the validity and subsistence of the said Deed, the adjudication of Petition would be premature because the occurrence of default as envisaged u/s 7(1) of the Code does not arise at this stage.

The Principal Borrower defaulted in repayment of loan and was declared as an NPA. Since the debt was duly acknowledged by the Principal Debtor as well as CD in their respective Balance Sheets for the FY 2020-21, it cannot be contended that the debt is barred by limitation.

The Petitioner by relying on the decision of the Hon’ble Apex Court in Suo Moto W.P. (C) No.3/2020 and the said acknowledgements, stated that the Petition is within the limitation period. Once the debt has been acknowledged by the Principal Debtor it not only extends the period of limitation to file a petition against the Principal Debtor but also against the Guarantor.

The Board of Directors of the CD in its meeting held on 10.12.2007 duly passed a resolution guaranteeing the repayment of the loan advanced by the FC to Principal Borrower and two Directors, namely, Shri M. Somasekhara Reddy and Shri D. Surendranath Reddy duly executed a registered Deed of Guarantee dated 26.03.2008 in favour of the Financial Creditor. In its letter dated 14.11.2014 the Respondent made a false statement that they were not related to the Borrower whereas they were holding equity shares of the Principal Borrower as stated in the Petition. Thus, the Deed of Guarantee is valid, legal and binding on the CD.

In terms of Section 128 of the Contract Act, the liability of a surety / guarantor is co-extensive with that of the Principal Borrower and hence, the guarantor’s liability does not end till the time the same is discharged either by the Principal Borrower or by Guarantor.

In the financial statements of the CD for the FY 2014-15, the Corporate Guarantee in question has been mentioned under the head ‘Contingent Liabilities’ and states that the claim under this Guarantee was being negotiated by the Company with ‘the Promoters / erstwhile seller-shareholders’.

Merely because the Financial Creditor did not initiate any action against the CD in 2015 doesn’t make the Petition time barred as the Principal Borrower in this case has acknowledged the debt even till the year 2021 in its Balance Sheets. Further, the judgment of Syndicate Bank vs. Channaveerappa Beleri & Ors., relied by the CD is inapplicable to the facts of present case.

Clause 21 of the alleged Deed of Guarantee dated 26.03.2008 provides the manner in which a demand notice for payment is to be issued. It specifically provides that ‘no period of limitation shall commence to run in favour of the Guarantor until after demand for payment in writing shall have been made or given’. Therefore, the period of limitation in respect of any claim made by the Petitioner, shall commence upon the issuance of a demand notice under Clause 21 of the said Deed.

Accordingly, vide notice dt.24.02.2015, the Petitioner made a demand for payment of an amount of Rs.25,99,05,876/- within the period stipulated in Sec. 271(2) of the Companies Act, 2013 (namely, within 21 days). Therefore, in terms of Clauses 3 and 21 of the alleged Deed of Guarantee, the limitation period in respect of the Petitioner’s claim began to run upon expiry of this 21-day period. Therefore, the repayment obligation, if any, arose on 15.03.2015. Therefore, for the purposes of limitation, the right to apply accrued on 15.03.2015, and thus CP is ought to have been filed on or before 15.03.2018, however, it is filed only on 24.02.2022, which is 4 years from the date on which the limitation period expired.

An argument of co-extensive nature of a guarantee is valid only till its invocation. Once a guarantee is invoked, the obligation to pay arises. Once the obligation arises, the Creditor must sue for recovery of the money under the guarantee within the time prescribed. Further, once the guarantee is invoked, the admissions if at all any by the Borrower is of no consequence in so far as the guarantor is concerned.

The Petitioner has sought to incorrectly contend that the petition is within time, since the guarantee is apparently a ‘continuing guarantee’. It is well established that there is 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.

A perusal of the explanatory report in the CD’s Balance Sheets for the FYs 2018-19 and 2020-21, will reveal that no such acknowledgement is made of any purported liability to the Petitioner. To the contrary, the Respondent has categorically denied the existence of any such liability.

Respondent has relied upon the following decisions:

B.K. Gupta Educational Services Pvt. Ltd. v. Parag Gupta and Associates, (2019) 11 SCC 633;

Syndicate Bank v. Chnnaveerappa Beleri & Ors., (2006) 11 SCC 506;

Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal & Anr., (2021) 6 SCC 366;

Vidarbha Industries Power Ltd. v. Axis Bank Ltd., (2022) 8 SCC 352;

Mango Meadows Agricultural Pleasure Land (P) Ltd. v. Union of India, (2022) SCC Online Ker 4451.

Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal & Anr., (2021) 6 SCC 366;

Babumanoharan Jai Kumar Christhurajan v. Indian Bank & Ors. (MANU/NL/0216/2022);

Laxmi Pat Surana v. Union Bank of India & Anr., (2021) 8 SCC 481;

Suo Moto Writ Petition (C) No.3 of 2020;

Sabbas Winifred Joseph v. IDBI Bank Ltd. & Ors. (MANU/NL/0078/ 2022);

State Bank of India v. Athena Energy, (2020) SCC Online NCLAT 774

Vishnu Kumar Agarwal v. Piramal Enterprises Ltd. (MANU/NL/0003 /2019);

Govindanaik G. Kalaghatigi v. West Patent Press Co. Ltd. & Anr. (ILR 1979 KAR 1401);

Charan Singh & Ors. v. State of U.P., (2004) 4 SCC 205;

Indian Renewable Energy Development Agency Ltd. v. Bhadragiri Power Pvt. Ltd. in CP (IB) No.47/BB/2022 dt.02.12.2022.

As per the Laxmi Pat Surana (supra), the date of NPA can be reckoned as the date of default. In the present case, the date of NPA of Borrower is 31.03.2012 and therefore, in Part-IV of Form-1 the same date of default is mentioned. Since the liability of guarantor is co-extensive to that of the borrower, as contained u/s 128 of Indian Contract Act, 1872, even the date when the borrower defaulted on its repayment obligation i.e., 31.12.2011, can be said to be the date of default in terms of IBC, and therefore, the said date can also be considered as date of default by the Corporate Debtor.

It is well settled that acknowledgement of debt by the borrower is as good as acknowledgement of debt by the guarantor. It is further stated that this Tribunal has already initiated CIRP against the Borrower i.e., M/s. Bhadragiri Power Pvt. Ltd. vide order dated 02.12.2022 finding the ‘debt’ within the period of limitation.

The loan taken by the Borrower is alleged to have been guaranteed by the Respondent by way of an alleged Deed of Guarantee. Importantly, the Balance Sheet of the Respondent for FY 2008-09 does not mention this alleged Guarantee. Between March-April, 2010, Greenko Energies Pvt. Ltd. acquired the shareholding of Respondent from the Bhadragiri Group.

The Petitioner recalled the loan from the Borrower by way of a loan recall notice dated 09.08.2012, and also claims to have invoked the alleged guarantee against the Respondent simultaneously. Thus, the alleged corporate guarantee that is subject matter of these proceedings was invoked in August 2012. When the Borrower requested Petitioner between 2012-13 to withdraw its recall notice, the same was refused by Petitioner vide letter dated 02.02.2013.

Subsequently, in June 2014, cheques issued by Borrower to Petitioner bounced. At this stage, the Petitioner notified the Borrower that if it failed to pay the dues to the Petitioner, it would also invoke the alleged Deed. The Petitioner once again notified the Borrower of its default in October 2014, marking a copy of this letter to Greenko Group and not the Respondent herein.

The Respondent was shocked to receive this letter, and upon receiving the letter, issued a letter dated 14.11.2014 to the Petitioner denying the alleged Deed and any liability thereunder. At this stage, Petitioner issued a notice dt.24.02.2015. This notice disregards the 1^st guarantee invocation notice in 2012, which is the actual starting point of limitation. Once a guarantee is invoked the right to sue arises immediately.

The Respondent filed O.S. No.147/2018 before the Hon’ble City Civil Court at Hyderabad seeking a declaration that the alleged deed of guarantee 26.03.2008 is null and void and other reliefs, wherein, the Petitioner and Borrower are Parties to the Suit, which was filed in 2018, well before the present proceedings were initiated. Therefore, it is clear that the dispute raised by the Respondent on the validity of the alleged Deed is genuine. The said Suit is still pending.

The Petitioner and Respondent had correspondence between 2019 and 2021, in which the Respondent at all times denied the liability. Despite the same, Petitioner vide notice dt.27.05.2020 once again purported to invoke the alleged Deed of Guarantee. In the said Suit, the Petitioner categorically admitted that it had invoked the alleged Deed against the Respondent herein, by a notice dt.24.02.2015. Petitioner in its written statement admitted that it recalled the loan granted to the Borrower, vide notice dated 13.08.2012. Therefore, it is clear that the second purported invocation (in 2020) of the alleged Deed is nothing but an attempt by Petitioner to overcome the fact that its claim is barred by limitation. Law does not permit of repeated invocations of guarantees.

The demand having been made on 24.02.2015 with payment to be made within 21 days, the period of limitation starts from 17.03.2015 and ends on 17.03.2018. As stated above, the alleged Deed is an ‘on-demand’ guarantee. In the present case, since the alleged Deed being an ‘on-demand guarantee’ had been previously invoked on 2 occasions by the Petitioner in 2012 & 2015, the present CP is barred by limitation.

In Laxmi Pat Surana (supra), the guarantor had admitted liability on 08.12.2018 and Petition had been filed on 13.02.2019, thus bringing the case within limitation. In the present case, the demand was made on 24.02.2015, there is no admission of liability by the Respondent at any time and therefore the claim is barred by limitation.

In the Balance Sheet for FY 2018-19 the Respondent clearly stated that ‘there is an ongoing dispute between the company and the bank on the amount of guarantee the company is obligation, hence we are unable to comment on the present obligation of the company until respective guarantees till the matter reaches a finality’. The same reveal that the Respondent denies its obligation to the Petitioner and therefore, the same does not amount to acknowledgement of debt and the provisions of Sec.18 of Limitation Act are not applicable to present case. It is also stated that the judgments relied upon by the Petitioner are not relevant to the facts of the instant case. Further, on application of the principle laid down by the Hon’ble NCLAT in Vishnu Kumar Agarwal v. Piramal Enterprises Ltd., the present CP which is for the same set of claim and default is liable to be dismissed.

Pooja Ramesh Singh v. State Bank of India & Ors., dated 28.04.2023, (2023) SCC OnLine NCLAT 193;

J.C. Flowers Asset Reconstruction Pvt. Ltd. v. Deserve Exim Pvt. Ltd., dated 03.05.2023, (2023) ibclaw.in 378 NCLAT;