M/s, Q West Infrastructure Pvt. Ltd. (Erstwhile Karanja Logistics Pvt. Ltd.) vs M/s Grevek Investments & Finance Pvt. Ltd.

Per: Madhu Sinha, Member (Technical)

The above Company Petition is filed by M/s Q West Infrastructure Pvt. Ltd. hereinafter called as the (“Financial Creditor”) seeking to initiate Corporate Insolvency Resolution Process (CIRP) against M/s Grevek Investments & Finance Private Limited hereinafter referred to as the (“Corporate Debtor”) on 09.03.2024 by invoking the provisions of Section 7 of Insolvency and Bankruptcy Code (hereinafter called “Code”) read with Rule 4 of the Insolvency & Bankruptcy (Application to Adjudication Authority) Rules, 2016 for a Resolution of Financial Debt of Rs. 17,90,73,973/- (Rupees Seventeen Crores Ninety Lakhs Seventy Three Thousand Nine Hundred and Seventy Three Only) comprising of the principal amount (the ICD Amount) of Rs. 11,00,00,000/- (Rupees Eleven Crores Only) and Rs. 6,90,73,973/- (Rupees Six Crores Ninety Lakhs Seventy Three Thousand Nine Hundred and Seventy Three Only) as interest thereon. The Date of Default is 17.01.2024.

The Corporate Debtor, Grevek Investments And Finance Private Limited is a Company incorporated under the Companies Act, 1956 and is a Corporate Guarantor for Starwort Engineers Pvt Ltd. ("Principal Borrower") under the Inter Corporate Deposit Agreement entered into between the Financial Creditor and the Principal Borrower.

The Financial Creditor and the Principal Borrower had entered and executed an Inter Corporate Deposit Agreement ("ICD Agreement") dated 10.11.2020 for an amount of Rs. 11,00,00,000 (Rupees Eleven Crores only) ("ICD Amount") at the rate of 15 % p.a. interest on such terms and conditions as mentioned in the ICD Agreement. Accordingly, the repayment of the ICD Amount along with accrued interest thereon was required to be done on or before 10.11. 2021 (the Due Date). The ICD Amount was disbursed by the Financial Creditor by cheque No. 000336 on 11.11.2020. the relevant clauses of the ICD Agreement are reproduced below:-

As security for repayment of ICD Amount along with the interest thereon, the Financial Creditor was provided irrevocable and unconditional guarantees dated 10.11.2020 by the following security providers (the Corporate Guarantors) on behalf of the Principal Borrower:-

a. Grevek Investments & Finance Private Ltd.

b. Budding Mercantile Co. Pvt. Ltd.

c. Replenish Realty Private Ltd.

d. Avocado Realty Pvt. Ltd.

e. Slimline Realty Pvt. Ltd. f. Winsome Realty Pvt. Ltd.

The Principal Borrower had also provided a Demand Promissory Note dated l0.11.2020 for repayment of the ICD Amount along with the interest on demand by the Financial Creditor.

At this juncture, it is apt to reproduce the relevant clauses of the Corporate Guarantee also-

The amount of Rs. 12,65,00,000/- (Rupees Twelve Crores and Sixty-Five Lakhs Only) (ICD Amount+ interest@ 15% per annum thereon) fell due for repayment by the Principal Borrower on the Due Date. However, the Principal Borrower, vide letter dated 05.11.2021 addressed to the Financial Creditor, sought for extension of the Due Date in consonance with clause 1.5 of the ICD Agreement. The said extension was sought for a period of one year i.e upto 10.11.2022.

The said extension was granted by the Financial Creditor vide its letter dated 08.11.2021 and accordingly the due date of repayment was revised to 10.11.2022 ("the Extended Due Date"). However, the Principal Borrower failed to make payment to the Financial Creditor as per the ICD Agreement and did not adhere to the Extended Due Date citing its financial constraints and sought some relief from the Financial Creditor with regard to repayment amount and time to repay the same.

Thereafter, the Financial Creditor and the Principal Borrower eventually entered into a settlement agreement dated 15.02.2023 ("the Settlement Agreement") in order to amicably settle the said debt. Under and as per the Settlement Agreement, the Principal Borrower was required to pay only the ICD Amount in the below mentioned manner:-

a. Rs. 5,50,00,000/= (Rupees Five Crore Fifty Lakhs only) on or before 30th June, 2023

b. Rs. 5,50,00,000/= (Rupees Five Crore Fifty Lakhs only) on or before l5th December, 2023

The other relevant terms and conditions of the Settlement Agreement are as follows:

The Principal Borrower once again failed to adhere to the repayment schedule as agreed between the parties in the Settlement Agreement.

In view of the Principal Borrower's failure to pay as per the Settlement Agreement, the Financial Creditor vide its Demand cum Invocation Notice dated 01.01.2024 called upon the Principal Borrower, Corporate Debtor/Guarantor along with the other Corporate Guarantors to repay the entire amount of Rs. 17,90,73,973/-, comprising of the ICD Amount of Rs. 11,00,00,000/- and Rs. 6,90,73,973/- towards the interest amount. The said Demand cum Invocation Notice, despite being duly received by the Principal Borrower and the Corporate Debtor/Guarantors, all have failed to make the said repayment and has thus defaulted under the Insolvency and Bankruptcy Code, 2016 (''Code"). The said default of the Corporate Debtor has also been recorded with NeSL, as per whose records, the corporate debtor is one of the corporate guarantors for the debt owed by the borrower to the Financial Creditor under the ICD Agreement.

Till date, neither the Principal Borrower, Corporate Debtor/Guarantor nor any of the other Corporate Guarantors who had furnished their respective Corporate Guarantees as security under the ICD Agreement have responded to the said Demand Cum Invocation Notice dated 01.01.2024 issued to them which clearly establishes and demonstrates the mala fide intention of the Principal Borrower, Corporate Debtor /Guarantor and its other Corporate Guarantors to not pay to the Financial Creditor the legitimate dues owed by them to the Financial Creditor. According to this notice, payment was to be made within 15 days from the date of issuance of this notice. Accordingly, the date of default is computed as 17.01.2024.

Further, the Section 7 application against the Principal Borrower was filed by the Financial Creditor before the National Company Law Tribunal, Mumbai Bench on 12 February, 2024 and the same has been admitted vide order dated 16.07.2024.

In view of the above, the Financial Creditor has filed the present application against the Corporate Debtor being the Corporate Guarantor for the Principal Borrower. The Financial Creditor has also placed reliance on the judgement of the Hon’ble Supreme Court in Laxmi Pat Surana v. Union Bank of India and Anr. (2021) 8 Supreme Court Cases 481, to put forth the contention that the liability of the corporate guarantor is coextensive with the Principal Borrower, the relevant paragraph of which is reproduced below:-

In relation to the submissions made by the CD in its Affidavit in Reply dated 05 June 2024, the FC submits the following: -

All the relevant clauses have already been reproduced above for ready reference.

The corporate debtor is opposing the admission of the Petition on the following grounds:

a. The Corporate Guarantee dated 10^th November 2020 has come to an end: The Corporate Debtor had executed the Corporate Guarantee dated 10th November 2020, to secure payment of amounts given by the Petitioner to Starwort Engineers Pvt. Ltd. ("Starwort") under an Inter-corporate Agreement dated 10th November 2020 ("ICD Agreement"). The said ICD Agreement was extended from time to time and finally replaced/substituted/subsumed in Settlement Agreement dated 15th February 2023. A perusal of the Settlement Agreement and in particular, Recital G thereof, clearly indicates that the Settlement Agreement has been executed in full and final settlement of the ICD agreement. The same is reproduced below-

Thus, with the execution of the Settlement Agreement, the principal borrower i.e. Starwort would stand discharged under the ICD Agreement, and hence, as a result thereof, the Corporate Debtor herein would also be discharged from its obligations under the Corporate Guarantee.

b. The Corporate Debtor is not party to the Settlement Agreement: The amount claimed in the present petition is due under the Settlement Agreement dated 15th February 2023, which has replaced/substituted the ICD Agreement. I say that the Corporate Debtor is neither a party to the said Settlement Agreement nor was its consent taken prior to execution of the Settlement Agreement. As stated hereinabove, the Corporate Guarantee was executed only to secure amounts due under the ICD Agreement. This has been clearly recorded in Recital 3 (already reproduced above) of the Corporate Guarantee. Thus, the Corporate Debtor is not bound to guarantee payment of any amounts due under the Settlement Agreement and as such, there is no question of the Petitioner filing the present Petition against the Corporate Debtor for a default under the Settlement Agreement.

c. Invocation Notice is not in compliance of terms of the Corporate Guarantee: Without prejudice to the aforesaid, it is submitted that the Invocation cum Demand Notice dated 01 January 2024 is not in compliance with the provisions of the Corporate Guarantee with respect to delivery thereof. The copy annexed to the present Petition does not bear any mark showing acknowledgement of receipt by the Corporate Debtor. Further, the Petitioner has not annexed any other proof of the Invocation Notice having been delivered to the Corporate Debtor. Thus, the Invocation cum Demand Notice is not valid and as such, the Corporate Guarantee has not been invoked. The relevant clause of the Corporate Guarantee is reproduced below-

In light of the aforesaid grounds, it is clear that the Financial Creditor has failed to establish the existence of debt and default, which is necessary to maintain any Petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, hence this petition should be dismissed.

We have heard both the parties and perused all the documents placed on record.

The case of the Financial Creditor, in brief, is that basis the clear and express relevant terms under the ICD Agreement and the corresponding Corporate Guarantee, both dated 10.11.2020, the Corporate Debtor in this case becomes liable for default by the Principal Borrower under the Settlement Agreement dated 15.02.2023 also. In spite of issuing Invocation cum Demand Notice dated 01 January 2024, the corporate debtor has not fulfilled its financial obligations toward the financial creditor. Hence in view of the fact that both debt and default are established, this present petition deserves to be admitted.

On the other hand, it is the case of the corporate debtor, that the above stated Settlement Agreement substitutes the Corporate Guarantee dated 10^th November, 2020 and thus the latter has terminated. Moreover, the Corporate debtor/corporate guarantor was not a party to the said Settlement Agreement and hence any default committed by virtue of the same cannot bind the corporate debtor in the present case. Furthermore, the Invocation cum Demand Notice dated 01 January 2024 is not in compliance with the provisions of the Corporate Guarantee with respect to delivery thereof as neither does it bear any mark showing acknowledgement of receipt by the Corporate Debtor nor any other proof of the Invocation Notice having been delivered to the Corporate Debtor is annexed to the present petition.

The fact that the Principal Borrower had availed of and the Lender/Financial Creditor had provided the loan, which was backed by the corporate guarantee of the present corporate guarantor/corporate debtor, is not disputed. The contentions of the corporate debtor are that the corporate guarantee has come to an end by virtue of the Settlement Agreement and this termination is aggravated by the fact that the corporate debtor/corporate guarantor was not made a party to the Settlement Agreement. At this juncture, in order to deal with the above stated contentions, we deem it apt to reproduce the relevant clauses of the Corporate Guarantee dated 10.11.2020 -

On perusal of the above clauses, it is sufficiently and reasonably crystal clear that the Corporate Guarantee of the Corporate Debtor is persistent in nature to the point of satisfaction of the outstanding liability towards the Financial Creditor. Furthermore, Clause 6 of the Corporate Guarantee clearly mentions that terms and conditions of the ICD Agreement can be modified/varied or altered without making the Corporate Guarantor a party to the same and the Settlement Agreement dated 15.02.2023, is a by-product of the same clause very much imbibed in the ICD Agreement. Thus, the corporate guarantor/corporate debtor is liable even when not made a party to the Settlement Agreement. It is also pertinent to note that Clause 18, reproduced above, exclusively mentions that no settlement between the Lender and Principal Borrower would discharge the present corporate guarantor/corporate debtor of its liability by virtue of the guarantee. Therefore, in light of all the relevant clauses considered together, we reach the conclusion that the Corporate Guarantor is liable not only under the ICD Agreement but also when default has taken place under the Settlement Agreement. Additionally, vide order dated 16.07.2024, this Hon’ble Tribunal has already admitted the Principal Borrower into CIRP which adds more strength to this case thereby making it full proof.

Debt of more than Rs. 1 crore against the Corporate Guarantor thus stands proved.

We will however, now examine the next contention of the corporate guarantor/corporate debtor, that the Notice cum Invocation dated 01.01.2024 is not valid/legally tenable since neither does it bear any mark showing acknowledgement of receipt by the Corporate Debtor nor any other proof of the Invocation Notice having been delivered. Hence since guarantee was never invoked in accordance with Corporate Guarantee agreement dated 10.11.2020 therefore default has not incurred. Thus, this present petition is liable to be dismissed. In order to address this contention, we deem it apt to reproduce the relevant clause of the corporate guarantee which is as follows:-

Since the present case is one in which guarantee invocation is on demand as is clearly evident form clause 3 reproduced above the date of notice cum invocation, i.e. 01.01.2024 will be the date of default only if the said notice is legally tenable. Clause 23 (reproduced above) clearly stipulates that any demand for payment or notice under this corporate guarantee shall be sufficiently given if sent by post or left at the last known address of the corporate guarantor. The same clause provides that the conclusive proof of such above stated delivery would be an envelope containing the notice signifying it was posted and a certificate by any of the responsible officers of the lender that to the best of his knowledge and belief, the envelope containing the said notice was so posted. It is pertinent to note that the Financial Creditor has not placed any of the above mentioned evidence on record to substantiate the fact of sufficient delivery of the notice cum invocation of guarantee. Neither did the financial creditor attach/place on record any proof of delivery of the Notice cum Invocation dated 01.01.2024 nor has it opposed this contention of the corporate guarantor by any arguments in its reply or written submissions. Hence there is clear violation of the terms and conditions of the corporate guarantee dated 10.11.2020. Since the demand notice was never purportedly delivered to the Corporate Guarantor , the corporate guarantee never got invoked by the financial creditor in terms of the guarantee agreement which forms the basis of this petition, the default by corporate guarantor cannot be established .

The bench thus comes to the conclusion that since the financial creditor has failed to establish that the notice cum invocation dated 01.01.2024 was not sufficiently delivered therefore default on the part of the corporate guarantor does not stand to be established either. This view of the bench is substantiated by the judgement of the Hon’ble NCLAT in Mudhit Madanlal Gupta v. Supreme Constructions and Developers I.A. No. 4789 of 2023 in Company Appeal (AT) (Insolvency) no. 920 of 2023 in which it was held:-

Hence, in view of the fact, that although the existence of debt is established in this case based on the documents and arguments presented, the financial creditor is not able to establish invocation of the corporate guarantee, and consequently, the default on the part of the corporate guarantor also is not established and hence, the bench deems it fit to that the present CP No. 260/MB/2024 be rejected.

Ordered accordingly