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Judgment
Per: Bench
Under consideration is an Application filed by the Financial Creditor under Section 60(2) and 95 of the Insolvency and Bankruptcy Code, 2016 read with Rule 7 of Insolvency and Bankruptcy (Application to Adjudicating Authority Insolvency Resolution Process for Personal Guarantors to Corporate Debtor) Rules, 2019 to initiate Insolvency Resolution Process against Mr. Kunam Dayakar Reddy, Personal Guarantor of Corporate Debtor namely M/s. KRR Infra Projects Pvt. Ltd.
Brief facts of the instant Petition are as under:-
That the Respondent No.2 availed Term Loan of Rs.46 Cores with the petitioner on 05.06.2008 which were periodically renewed/enhanced lastly the Respondent No.2 executed on 29,02.2012.
The Respondent No.1 is one of the guarantors to the credit facilities sanctioned to Respondent No.2. The Respondent No.1 has offered personal guarantee by executing Guarantee Agreements dated 05.06.2008, 15.12.2008, 02.07.2009, 29.01.2010, 17.01.2011 and 29.02.2012 for the Transactions of Respondent No.2 in favour of the petitioners. The said guarantees are continuing guarantee as per Clause 6 and other clauses. As the guarantee is invoked by legal notice dated 24.12.2013 which culminated in the continuation of the judicial proceedings till date the liability of Respondent No.1 in personal capacity as a guarantor is Joint and several and co-extensive in that of Respondent No.2.
The Respondent No.2 is into the business of commissioning of Infra Projects.
That the Petitioner/Financial Creditor sanctioned various facilities to the Corporate Debtor Company, M/s. KRR Infra Projects Pvt. Ltd., (which was earlier a Partnership Firm converted into a Private Limited Company subsequently) as enumerated in the main petition and the Respondent No.1/Personal Guarantor is one of the personal guarantors to the various facilities sanctioned by the Financial Creditor i.e. fund based and non-fund based facilities.
That the Corporate Debtor has defaulted in repayment of the principal and payment of interest dues etc. payable under the various agreements and the account became an NPA leading to recall of loans and filing of OA No.273/2017 (old OA No.105/2014) before the Ld. DRT-II, Hyderabad. The said Ld. DRT in following the due procedure established by law, passed orders dated 19.06.2017 for recovery of outstanding debt amount of Rs.96,49,28,896/- from the date of filing of OA (in 2014) till the date of full payment/final realization together with future interests stated therein. The Ld. DRT also issued Recovery Certificate bearing RC No.2508/2017 dated 18.09.2017 for an amount of Rs.144,94,63,517/- (including subsequent interest thereon and costs).
That thereafter a Demand Notice dated 20.12.2017 was issued by the Recovery Officer attached to the Ld. DRT to the borrower company (Corporate Debtor) and guarantors, including the Respondent No.1 herein. When the Defendants failed to pay the amount under Recovery Certificate, the Recovery Officer issued attachment orders dated 23.05.2018 against the RC scheduled properties.
That the Financial Creditor also filed a petition u/s 7 of IBC, 2016 on 03.11.2020 and this Adjudicating Authority vide its orders dated 06.08.2021 allowed the CP(IB) No.430/7/HDB/2020 and appointed Mr. Gollamudi Krishna Mohan, as IRP initiating the CIRP process.
That thereafter this Financial Creditor issued a statutory notice in FORM B dated 30.07.2021 u/s Rule 7(1) of IBBI (Application to Adjudicating Authority for Insolvency Resolution Process of Personal Guarantors to Corporate Debtors) Rules, 2019 to the Respondent No.1 / Personal Guarantor (Mr. Kunam Dayakar Reddy) demanding for payment of outstanding debt of the Corporate Debtor amounting to Rs.271,67,02,273/-. Though the said notice was received on 02.08.2021, the Respondent/Personal Guarantor herein failed to honour his guarantee obligations.
That the Financial Creditor also filed a claim in FORM C dated 24.08.2021 before the Ld. IRP claiming an amount of Rs.271,67,02,273/-.
That the present petition is filed by the Financial Creditor against the Respondent No.1 / Personal Guarantor and for this purpose obtained the ‘consent’ in FORM A of proposed Resolution Professional to the Personal Guarantor under Regu. 4(2) of IBBI (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Regulations 2019.
As the Personal guarantor has failed to pay the amount of default, the Financial Creditor has filed the instant Application.
Reiterating the above, counsel for the Applicant prayed to allow the instant application.
Counsel for Respondent filed Counter stating as under:-
That it is admitted by the Petitioner in the instant Petition that the date of default is 02.12.2013 and the demand notice which is claimed to be sent by the Petitioner herein was only on 30.07.2021 which is after expiry of the period of limitation. Therefore, the instant application is barred by limitation.
That the Petitioner averred that as per clause 6 of the guarantee agreements the guarantee given by the Respondent No.1 is continuing and subsisting. Apart from the said clauses in the deed of guarantee which was signed by Respondent No.1 herein, there is no document which evidences that the debt was acknowledged by Respondent No.1 after the date of default. Therefore, no acknowledgement of debt is provided by the answering Respondent after the deed of guarantee dated 29.01.2010, 17.01.2011, 29.02.2012 is signed by the answering Respondent. Merely referring to and relying on the standard clause of the said deed of Guarantee shall not be construed as the acknowledgement of debt by the answering Respondent.
That the Legal notice dated 24.12.2013 is also unserved on the Respondent No.1.
That since no document has been provided by Respondent No.1 herein to the Petitioner / Financial Creditor herein for acknowledgement of debt by the Respondent No.1 after the date of default on 02.12.2013, therefore the instant Company Petition is not maintainable and is untenable.
Reiterating the above, counsel for the Respondent-1 prayed to dismiss the instant application.
Counsel for Petitioner / Financial Creditor filed Rejoinder stating as under:-
That it is vehemently denied that application is barred by limitation and is liable to be dismissed. That R01 has failed to visualize the chain of sequence of events commencing from date of creation of mortgage, 1st date of default i.e., 02.12.2013, issuance of notices under SARFAESI Act, 2002 and Rules made thereunder whereunder issuance of legal recall notice by which the personal guarantee is invoked for the claims against the corporate debtor, non-compliance of the same resulted in filing of the original application vide OA No.104 of 2015 before the Ld. DRT-2. By no stretch of imagination the demand made under notice dated 30.07.2021 can be termed as the demand after the expiry of period of Limitation. As the demand amount by various notices are unpaid hence this is the continuation of cause of action and it establish that application is within Limitation.
That it is vehemently denied that there is no acknowledgment of debt by R-1, in fact the culmination of the guarantees into a lawful decree/order of Ld. DRT-2 gives continuing cause of action to the petitioner. The Deeds of guarantees dated 29.01.2010, 17.01.2011 and 29.02.2012 are not backed-up acknowledgement of Debt, so also by referring to the standard clauses in Deed of Guarantee the acknowledgement of Debt cannot be denied.
That the legal notice dated 24.12.2013 is addressed to the very same address mentioned in the present petition, R-1 deliberately avoided to receive the notice. The Financial Creditor is discharged from the responsibility once the notice is correctly addressed and postal charges paid. The proofs enclosed along with the notice are clear evidence of the steps taken.
Reiterating the above, counsel for the Applicant prayed to allow the instant application.
The instant matter came up for hearing on 16.12.2021, wherein the Interim moratorium order as contemplated U/s. 96 of the Code, 2016 came to be passed. This Adjudicating Authority further appointed Mr. D.S.R.K. Saibaba as RP in the instant matter in compliance with the section 97 of the Code, 2016 and the RP was directed to file his Report within 10 days as contemplated U/s 99 of the Code, 2016.
In compliance with the same, the Resolution Professional filed his report dated 08.01.2022 filed on 11.01.2022, inter-alia, recommending for the approval of the Petition CP(IB) No. 324/95/HDB/2021 filed by Financial Creditor against the Personal Guarantor Mr. Kunam Dayakar Reddy to the Corporate Debtor M/s KRR Infra Projects Pvt. Ltd.
Heard. Perused the record.
It is the case of the Financial Creditor that it has provided various loan facilities to the Corporate Debtor namely M/s. KRR Infra Projects Pvt. Ltd. and upon default by the said Corporate Debtor, an Application under Section 7 of IBC came to be filed and the same was admitted for CIRP on 06.08.2021. While the matter stood thus, the Financial Creditor herein has filed instant Application under Section 95 of the Code, 2016 against the Personal Guarantor namely Mr. Kunam Dayakar Reddy.
The said Application came up for hearing on 16.12.2021, wherein the orders of interim moratorium as contemplated U/s. 96 of the Code, 2016 and for appointing the RP as contemplated U/s. 97 of the Code, 2016 came to be passed and Mr. D.S.R.K. Saibaba holding IBBI Registration No. IBBI/IPA-003/IP-N00165/2018-2019/12106 was appointed as RP. The RP was directed to file his Report within 10 days.
The RP has filed his report dated 08.01.2022 as contemplated U/s. 99 of the Code, 2016, inter-alia, recommending for acceptance of the instant Application.
It is also pertinent to note that the Personal Guarantor has contested the matter on ground of limitation.
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From a perusal of record and pleadings it is clear that the following facts are not disputed:
That the Principal Borrower/CD namely M/s KRR Infra projects Pvt Ltd owes financial debt to the Applicant/Financial Creditor to the tune of Rs.271,67,02,273/-.
That the said debt is crystallized in accordance with the judgment of Hon'ble DRT dated 19.06.2017 followed by issue of Recovery Certificate issued on 18.09.2017.
That the Respondent herein is a Personal Guarantor to the debt owed by the Principal Borrower/Corporate Debtor by virtue of Deeds of Guarantee as detailed in the Application signed by him in favour of the Financial Creditor/Applicant herein.
That CIRP u/s 7 of IBC 2016 was already initiated in the case of the Principal Borrower/CD by an order of admission passed by this Adjudicating Authority dated 06.08.2021.
However the Personal Guarantor/Respondent herein has challenged the instant Application mainly on the ground of limitation. It is the contention of the respondent herein that the account of the CD/Principal Borrower was declared NPA way back in 2012 whereas the instant Application was filed on 03.12.2021 and therefore the 3 years period has elapsed and limitation will apply in the absence of any acknowledgement of debt by the Respondent herein after signing the Deeds of Guarantee.
However, on a careful consideration of facts and law relevant, the Personal guarantor's argument that the application u/s 95 is barred by
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limitation cannot be acceded to in view of the following factual and legal positions:
Although the Corporate Debtor’s account was declared NPA in 2012, SARFAESI proceedings were initiated in 2014, which culminated in 2017 in favour of the Applicant herein by an order of Hon. DRT dated 19.06.2017 followed by issue of a recovery certificate by Hon. DRT on 18.09.2017, which gave a fresh cause of action against the Corporate Debtor for filing application under section 7, if the certified amount remained unpaid on demand. This principle has been reiterated by the Hon’ble Supreme Court in their recent judgment in Dena Bank vs. C. Shivakumar Reddy, (Civil Appeal No.1650 of 2020) wherein it has been laid down as under:
> “142. To sum up, in our considered opinion an application under Section 7 of the IBC would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, if there were an acknowledgement of the debt by the Corporate Debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years.
> 143. Moreover, a judgment and/or decree for money in favour of the Financial Creditor, passed by the DRT, or any other Tribunal or Court, or the issuance of a Certificate of Recovery in favour of the Financial Creditor, would give rise to a fresh cause of action for the Financial Creditor, to initiate proceedings under Section 7 of the IBC for initiation of the Corporate Insolvency Resolution Process, within three years from the date of the judgment and/or decree or within three years from the date of issuance of the Certificate of Recovery, if the dues of the Corporate Debtor to the Financial Debtor, under the judgment and/or decree and/or in terms of the Certificate of Recovery, or any part thereof remained unpaid.”
Since fresh cause of action started with the issue of recovery certificate by Hon. DRT, the period of limitation in the case of CD/Principal
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Borrower will run up to 17. 09. 2020. The Recovery Officer had issued a Notice to the CD/Principal Borrower on 08.03.2018 for recovery of Rs.144.94 Cr, which remained unpaid. In fact, this Adjudicating Authority has initiated CIRP u/s 7 of the IBC, 2016 in the case of the Corporate Debtor on an Application filed by the Applicant herein on 03.11.2020, vide our order dated 06.08.2021 on the basis of the continued default even after the issue of Recovery Certificate by the Hon'ble DRT.
It is settled law that a Guarantee binds the Guarantor to the Debt and Default of the Principal Borrower and runs co-extensively until the Debt is fully repaid by the Principal Borrower, in terms of provisions of section 128 of the Indian Contract Act, and the Creditor retains the right to sue the guarantor from the date of default committed by the Principal Borrower. It has also been held by Hon'ble SC in Laxmi Pat Surana —Vs- Union Bank of India & Anr. in Civil Appeal No. 2734 of 2020 that the liability of the 'Corporate Guarantor' is 'coextensive' with that of the 'Principal Borrower' and that acknowledgment given by the 'Principal Borrower' also binds the 'Corporate Guarantor':
In law, the status of the guarantor, who is a corporate person, metamorphoses into corporate debtor, the moment principal borrower (regardless of not being a corporate person) commits default in payment of debt which had become due and payable. Thus, action under Section 7 of the Code could be legitimately invoked even against a (corporate) guarantor being a corporate debtor. The definition of "corporate guarantor" in Section 5(5A) of the Code needs to be so understood.
A priori, we find no substance in the argument advanced before us that since the loan was offered to a proprietary firm (not a
corporate person), action under Section 7 of the Code cannot be initiated against the corporate person even though it had offered guarantee in respect of that transaction. Whereas, upon default committed by the principal borrower, the liability of the company (corporate person), being the guarantor, instantly triggers the right of the financial creditor to proceed against the corporate person (being a corporate debtor). Hence, the first question stands answered against the appellant.
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In the present case, the NCLT as well as the NCLAT have adverted to the acknowledgments by the principal borrower as well as the corporate guarantor corporate debtor after declaration of NPA from time to time and lastly on 08.12.2018. The fact that acknowledgment within the limitation period was only by the principal borrower and not the guarantor, would not absolve the guarantor of its liability flowing from the letter of guarantee and memorandum of mortgage. The liability of the guarantor being coextensive with the principal borrower under Section 128 of the Contract Act, it triggers the moment principal borrower commits default in paying the acknowledged debt. This is a legal fiction. Such liability of the guarantor would flow from the guarantee deed and memorandum of mortgage, unless it expressly provides to the contrary.
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The appellant was at pains to persuade us that the intention behind the communication dated 08.12.2018 sent to the financial creditor by the corporate guarantor (corporate debtor) is a triable matter, as it was sent without prejudice. We are not impressed by this submission. The fact that the principal borrower had availed of credit/loan and committed default and that the (corporate) guarantor/corporate debtor had offered guarantee in respect of the loan account is not disputed. What is urged by the appellant is that the acknowledgment of liability to pay the amount in question was by the principal borrower and that acknowledgment cannot be the basis to proceed against the corporate guarantor (corporate debtor). Section 18 of the Limitation Act, however, posits that a fresh period of limitation shall be computed from the time when the party against whom the right is claimed acknowledges its liability. The financial creditor has not only the right to recover the outstanding dues by filing a suit, but also has a right to initiate resolution process against the corporate person (being a corporate debtor) whose liability is coextensive with that of the principal
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borrower and more so when it activates from the written acknowledgment of liability and failure of both to discharge that liability.
Suffice it to conclude that there is no substance even in the second ground urged by the appellant regarding the maintainability of the application filed by the respondent financial creditor under Section 7 of the Code on the ground of being barred by limitation. Instead, we affirm the view taken by the NCLT and which commended to the NCLAT — that a fresh period of limitation is required to be computed from the date of acknowledgment of debt by the principal borrower from time to time and in particular the (corporate) guarantor/corporate debtor vide last communication dated 08.12.2018. Thus, the application under Section 7 of the Code filed on 13.02.2019 is within limitation"
The respondent has not denied the fact that he was a signatory to the Deed of Guarantee which binds him to the outstanding debt of the principal borrower/CD, but claims that the guarantee was invoked beyond a period of three years from the date the principal borrower's account was declared as NPA and the Respondent herein had never acknowledged the debt. However, we have already observed that the Order of the Hon. DRT and issuance of Recovery Certificate provided a fresh cause of action to the Creditor/Applicant herein by virtue of which the date of Recovery Certificate has to be taken as the date of default and the period of limitation being 3 years under Article 137 of the Limitation Act is to be computed from 18.09.2017 and accordingly it will run up to 17.09.2020.
Now, here it is pertinent to take note of Honourable Supreme Court's order in MA No. 21 of 2022 in MA No. 665 of 2022 in Suo Motu WP(C) No. 3 of 2022, by virtue of which the period of 25.03.2020 to 28.02.2022
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will stand excluded for the purposes of computation of limitation for institution, condonation or termination of any judicial or quasi-judicial proceedings before any court or tribunal and the balance period would run from 01.03.2022 only:
" 5. Taking into consideration the arguments advanced by learned counsel and the impact of the surge of the virus on public health and adversities faced by litigants in the prevailing conditions, we deem it appropriate to dispose of the M.A. No. 21 of 2022 with the following directions:
I. The order dated 23.03.2020 is restored and in continuation of the subsequent orders dated 08.03.2021, 27.04.2021 and 23.09.2021, it is directed that the period from 15.03.2020 till 28.02.2022 shall stand excluded for the purposes of limitation as may be prescribed under any general or special laws in respect of all judicial or quasi-judicial proceedings.
II. Consequently, the balance period of limitation remaining as on 03.10.2021, if any, shall become available with effect from 01.03.2022.
III. In cases where the limitation would have expired during the period between 15.03.2020 till 28.02.2022, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 01.03.2022. In the event the actual balance period of limitation remaining, with effect from 01.03.2022 is greater than 90 days, that longer period shall apply.
IV. It is further clarified that the period from 15.03.2020 till 28.02.2022 shall also stand excluded in computing the periods prescribed under Sections 23 (4) and 29A of the Arbitration and Conciliation Act, 1996, Section 12A of the Commercial Courts Act, 2015 and provisos (b) and (c) of Section 138 of the Negotiable Instruments Act, 1881 and any other laws, which prescribe period(s) of limitation for instituting proceedings, outer limits (within which the court or tribunal can condone delay) and termination of proceedings."
Following the orders of Hon'ble SC in Suo Motu Writ Petitions supra, it is seen that the instant application was filed on 03.12.2021 which is well within the limitation period and the debt in respect of which a demand
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notice was issued by invoking the guarantee has not become barred by limitation.
Since the respondent has not denied the fact that he is a bona-fide signatory of the Deed of Guarantee relied upon by the Applicant herein, considering the above legal and factual position, this AA is inclined to admit the instant application filed by the Financial Creditor.
Accordingly, the instant Application is hereby admitted in terms of Section 100 of the IB Code, 2016 for Insolvency Resolution Process against the Personal Guarantor namely Mr. Kunam Dayakar Reddy.
The moratorium is hereby declared which shall commence in relation to all the debts and shall cease to have effect at the end of the period of one hundred and eighty days beginning with the date of admission of the application or on the date this Adjudicating Authority passes an order on the repayment plan under section 114, whichever is earlier. For the purposes referred to in section 101 of the IB Code, 2016, it is hereby ordered to prohibit all of the following namely:-
a. any pending legal action or proceeding in respect of any debt shall be deemed to have been stayed;
b. the creditors shall not initiate any legal action or legal proceedings in respect of any debt; and
c. the debtor shall not transfer, alienate, encumber or dispose of any of the assets or his legal right or beneficial interest therein.
Resolution Professional is hereby directed to cause public announcement on behalf of this Adjudicating Authority as prescribed under section 102 of the IB Code, 2016 within seven days from the date of this order, calling for submissions of claim in the manner as prescribed under the Code and Regulations thereunder and file proof of same in the Registry.
Resolution Professional is hereby directed to proceed.
The Petitioner/Financial Creditor as well as the Registry is directed to send the copy of this Order to Resolution Professional so as to enable him to proceed further.
Resolution Professional is hereby instructed to conduct negotiations between the debtor and creditors for arriving at a repayment plan, as contemplated under section 100 of the Code, 2016.
Further Resolution Professional is directed to proceed with the Insolvency Resolution Process in accordance with the provisions of the IB Code, 2016 and Regulations thereunder.
The Registry is directed to communicate this Order to the Financial Creditor and the Personal Guarantor.
Accordingly, this Petition is admitted.