Rajkumar Nandlal Dhoot vs State Bank Of India

“O R D E R

(Hybrid Mode)

29.07.2024: Learned counsel for Appellant challenging the order admitting Section 95 application submits that objection was raised with regard to application being barred by time and judgment of Hon’ble Supreme Court in Laxmi Pat Surana vs. Union of India & Anr., (2021) 8 SCC 481 was also relied, however, the Adjudicating Authority has not adverted to said judgment in its order and has overruled the question of limitation. Shri Sunil Fernandes, learned counsel appearing for the Respondent submits that the application was well within limitation since the limitation against the Personal Guarantor shall commence when the guarantee is invoked and all facts are mentioned in the Section 95 application. Submissions raised by the parties require consideration.

Issue notice. Let Reply be filed within two weeks. Rejoinder be filed within one week thereafter.

List this Appeal on 02.09.2024.

In the meantime, in pursuance of the impugned order process may go on but no Resolution Plan shall be finalised/ approved.

Learned counsel for the Respondent submits that Appellant is not extending his cooperation in the process. Let Respondent inform the Appellant of the relevant documents and materials required from the Appellant.”

2.

Amount in default Upon occurrence of 'events of default' under the VIL Facility Agreements, SBI issued separate demand notices to VIL under each of the RTL Facility Agreement and the Working Capital Agreement, calling upon VIL to satisfy its obligations under the VIL Facility Agreements, pursuant to the following demand notices:

1.

Demand notice dated January 18, 2018 issued to inter alia, VIL, calling upon, inter alia, VIL to pay the outstanding amounts in relation to the RTL Facilities under the RTL Agreement;

2.

Demand notice dated January 23, 2018, calling upon, inter alia, VIL to pay the outstanding amounts in relation to the Working Capital Facilities under the Working Capital Agreement.

Copies of the abovementioned demand notices to VIL are collectively annexed hereto as Exhibit-8 Colly.

SBI issued demand notices to the Personal Guarantor under the Working Capital Agreement, demanding the Personal Guarantor to pay the outstanding amounts under the relevant Facilities. Similarly, the Security Trustee issued a demand notice to the Personal Guarantor under RTL Facility Agreement, demanding the Personal Guarantor to pay the outstanding amounts under the RTL Facility Agreement. The details of the demand notices issued to the Personal Guarantor are set out below:

1.

Demand certificate dated February 2, 2018, issued by the Security Trustee under the RTL Deed of Guarantee ("RTL Demand Notice") calling upon the Personal Guarantor to pay forthwith, an amount of INR 3171.37 Crores(Indian Rupees Three Thousand One Hundred Seventy One Crores and Thirty Seven Lakhs Only) (along with interest at the Default Rate (as defined in the RTL Agreement) all costs, expense and fees under the Financing Documents (as defined under the RTL Agreement)), which was due and payable to SBI as on December 31, 2017;

2.

Demand notice dated February 20, 2018, issued by SBI under the WC Deed of Guarantee ("WC Demand Notice") calling upon the Personal Guarantor to pay forthwith an amount of INR 795.57 Crores (Indian Rupees Seven Hundred and Ninety Five Crores and Fifty Seven Lakhs Only) (along with accrued interest, all costs, expenses, fees, interest at the default rate, under and pursuant to the Working Capital Agreement) which was due as on December 27, 2017.

The RTL Demand Notice and the WC Demand Notice are collectively referred to as the "Demand Notices".

Copies of the Demand Notices sent to the Personal Guarantor are collectively annexed herewith as Exhibit - 9 Colly.

However, the amounts demanded under the Demand Notices continue to be in default and have not been paid by the Personal Guarantor. Therefore, the total amount in default is INR 3966.94 Crores (Indian Rupees Three Thousand Nine Hundred Sixty Six Crores Ninety Four Lakhs Only) as on December 31, 2017 under the RTL Demand Notice and as on December 27, 2017 under the WC Demand Notice.

Further, the Personal Guarantor is liable to make payments of interest, default interest, liquidated damages, fees, charges or any other amounts as per the terms of the Facilities until the date of payment by the Personal Guarantor. It must be noted that recovery proceedings have been initiated against the Personal Guarantor before the Hon'ble Debts Recovery Tribunal, New Delhi on account of failure to pay the Default Amounts. The aforesaid proceedings are presently pending.

SBI reserves its rights in relation any other liability or debt owed by Personal Guarantor, whether or not invoked/demanded other than as set out in herein, which is due under the Facilities and/or Deeds of Guarantees.

Further, a Demand Notice dated July 23, 2020 ("IBC Demand Notice") was issued by SBI under Rule 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 ("PG AAA Rules") and in the format prescribed in Form B of the PG AAA Rules, calling upon the Personal Guarantor to pay forthwith an amount of INR 53,53,78,13,936.69 (Indian Rupees Five Thousand Three Hundred Fifty Three Crore Seventy Eight Lakh Thirteen thousand Nine Hundred Thirty Six Paise Sixty Nine Only) ("Default Amount").

A copy of the IBC Demand Notice sent to the Personal Guarantor (along with the copy of the email dated July 24, 2020 and the postal slips in respect of the registered post sent to the Personal Guarantor) is annexed herewith as Exhibit - 10. It is clarified that the IBC Demand Notice was sent to the Personal Guarantor by SBI via email dated July 24, 2020 and vide registered post.

This Default Amount as demanded under the IBC Demand notice has not been repaid by the Personal Guarantor within fourteen days of receipt of the IBC Demand Notice

“8.

The Guarantor shall unconditionally render any payment or performance guaranteed hereunder immediately on demand being made relying upon this Guarantee by issuance of the Demand Certificate. Without prejudice to any other provision of this Guarantee, to the extent that the Guarantor has or may have any reason to contest the claim made by the Onshore Security Trustee, the Guarantor shall first pay and then pursue any such claim.”

“2. GUARANTEE

2.1

The Guarantors hereby irrevocably, absolutely and unconditionally guarantee unto the Secured Parties that:

(i)

the Borrower shall duly and punctually pay the Guaranteed Obligations together with interest, additional interest, default interest, costs, charges, expenses and/or other money stipulated in or payable in accordance with the terms and conditions of the Fourth Supplemental Working Capital Consortium Agreement and other Financing Documents; and

(ii)

if at any time, default is made by the Borrower in payment of the Guaranteed Obligations, the Guarantors shall forthwith on demand pay to the SBI Consortium, without demur or protest or without the right of any set off and/or deductions and/or adjustments of any kind whatsoever, the whole of such Guaranteed Obligations and shall indemnify and keep indemnified the Secured Parties against all losses with respect to the said Guaranteed Obligations, interest, additional interest, default interest or other money due and all costs, charges and expenses whatsoever which the Secured Parties may incur by reason of any default on the part of the Borrower or as a result of the Guaranteed Obligations being or becoming void, voidable, unenforceable or ineffective as against the Borrower for any reason whatsoever irrespective of whether such reason or any related fact or circumstance was known or ought to have been known to the Secured Parties or any their officers, employees, agents or advisers.

2.2

The Borrower shall repay the Facilities at the applicable Interest Rate and that the SBI Consortium may at its discretion levy additional interest or default interest in respect thereof in accordance with the terms and conditions of the Fourth Supplemental Working Capital Consortium Agreement. The levy of such enhanced rate of additional interest or default interest shall be without prejudice to the SBI Consortium's other rights and remedies.

2.3

The Guarantors shall have no right to terminate their obligations under this Guarantee and any such right is explicitly excluded. The Guarantors hereby jointly and severally agree and undertake that the Secured Parties shall have the sole discretion to provide the Facilities at such time and on such conditions as are contained in the Fourth Supplemental Working Capital Consortium Agreement and the other Financing Documents. The Guarantors hereby confirm and consent to the terms of the Fourth Supplemental Working Capital Consortium Agreement and the other Financing Documents including the financial covenants (to the extent applicable to it) and the representations and warranties (to the extent applicable to it) as contained therein.

2.4

Any demand by the SBI Consortium to the Guarantors shall be conclusive evidence that the Guarantors liability hereunder has accrued and that the extent of the Guarantors' liability is the amount shown therein.”

“^{Ref. No.3651/SBICTCL/LEGAL/DJ/ST/2017-18}

Date: 2 February, 2018

DEMAND CERTIFICATE

TO: Shri R.N. Dhoot

Dhoot Bunglow

Station Road

Aurangabad-431005

Maharashtra

(as the "Guarantor")

CC:

1.

STATE BANK OF INDIA CAG Branch at Neville House. J.N. Heredia Marg, Ballard Estate. Mumbai-400001 (as the "Facility Agent")

2.

STATE BANK OF INDIA CAG Branch at Neville House, J.N. Heredia Marg. Ballard Estate, Mumbai-400001 (the "Lender")

Dear Sirs,

RE: Guarantee dated August 8, 2012 (the "Deed of Guarantee") executed by the Guarantor in favour of the Onshore Security Trustee.

The lender has, pursuant to the terms of the Rupee Term Loan Agreement dated August 8. 2012, advanced rupee term loan to the Obligors, on a joint and several basis.

The Obligors have not fulfilled their obligations under the Rupee Term Loan Agreement and an amount of Rs. 3171.37 crores (Rupees Three Thousand One Hundred Seventy One Crores and Thirty Seven Lacs only) (details of which are set out in the Schedule 1) is due and payable by the Obligors to the Lender as on 31.12.2017 and the Obligors are liable to pay the said amount together with interest at the Default Rate, along with all costs, expenses and fees under the Financing Documents, and as specified in the notice dated 18^th January 2018 issued by the Lender.

Accordingly, we hereby issue the demand notice pursuant to Section 4 of the Guarantee, calling upon you to pay the aforesaid amounts forthwith.

Capitalised terms used herein shall have the meaning given to them in the Deed of Guarantee and the Rupee Term Loan Agreement.

Yours faithfully. SBICAP Trustee Company Limited as the Onshore Security Trustee”

“1.1.

(i) Whether an action under Section 7 of the Insolvency and Bankruptcy Code, 2016 (for short “the Code”) can be initiated by the financial creditor (Bank) against a corporate person (being a corporate debtor) concerning guarantee offered by it in respect of a loan account of the principal borrower, who had committed default and is not a “corporate person” within the meaning of the Code?

1.2.

(ii) Whether an application under Section 7 IBC filed after three years from the date of declaration of the loan account as non-performing asset (for short “NPA”), being the date of default, is not barred by limitation?”

“23.

Indubitably, a right or cause of action would enure to the lender (financial creditor) to proceed against the principal borrower, as well as the guarantor in equal measure in case they commit default in repayment of the amount of debt acting jointly and severally. It would still be a case of default committed by the guarantor itself, if and when the principal borrower fails to discharge his obligation in respect of amount of debt. For, the obligation of the guarantor is coextensive and coterminous with that of the principal borrower to defray the debt, as predicated in Section 128 of the Contract Act. As a consequence of such default, the status of the guarantor metamorphoses into a debtor or a corporate debtor if it happens to be a corporate person, within the meaning of Section 3(8) IBC. For, as aforesaid, the expression “default” has also been defined in Section 3(12) IBC to mean non-payment of debt when whole or any part or instalment of the amount of debt has become due or payable and is not paid by the debtor or the corporate debtor, as the case may be.

25.

It may be useful to also advert to the generic provision contained in Section 3(37). It postulates that the words and expressions used and not defined in the Code, but defined in enactments referred to therein, shall have the meanings respectively assigned to them in those Acts. Drawing support from this provision, it must follow that the lender would be a financial creditor within the meaning of the Code. The principal borrower may or may not be a corporate person, but if a corporate person extends guarantee for the loan transaction concerning a principal borrower not being a corporate person, it would still be covered within the meaning of the expression “corporate debtor” in Section 3(8) IBC.

31.

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 IBC could be legitimately invoked even against a (corporate) guarantor being a corporate debtor. The definition of “corporate guarantor” in Section 5(5-A) IBC needs to be so understood.

32.

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 IBC 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.”

“14.

……..If the debt had already become time-barred against the principal debtor, the question of creditor demanding payment thereafter, for the first time, against the guarantor would not arise. When the demand is made against the guarantor, if the claim is a live claim (that is, a claim which is not barred) against the principal debtor, limitation in respect of the guarantor will run from the date of such demand and refusal/non-compliance. Where guarantor becomes liable in pursuance of a demand validly made in time, the creditor can sue the guarantor within three years, even if the claim against the principal debtor gets subsequently time-barred.”

“24.

The scheme of 1&6 Code clearly indicate that both the Principal Borrower and the Guarantor become liable to pay the amount when the default is committed. When default is committed by the Principal Borrower the amount becomes due not only against the Principal Borrower but also against the Corporate Guarantor, which is the scheme of the 1&6 Code. When we read with as is delineated by Section 3(11) of the Code, debt becomes due both on Principal Borrower and the Guarantor, as noted above. The definition of default under Section 3 (12) in addition to expression 'due' occurring in Section 3(11) uses two additional expressions i.e "payable" and "is not paid by the debtor or corporate debtor". The expression 'is not paid by the debtor' has to be given some meaning. As laid down by the Hon'ble Supreme Court in "Syndicate Bank v. Channaveerappa Beier!" (supra), a guarantor's liability depends on terms of his contract. There can be default by the Principal Borrower and the Guarantor on the same date or date of default for both may be different depending on the terms of contract of guarantee. It is well settled that the loan agreement with the Principal Borrower and the Bank as well as Deed of Guarantee between the Bank and the Guarantor are two different transactions and the Guarantor's liability has to be read from the Deed of Guarantee.

29.

The notice dated 01.10.2020, thus, has been issued invoking the grantee which expression is used in Para 12 above. When the Bank has given time to the Guarantor to make payment on 01.10.2020, there can be no default on part of the Guarantor on any earlier date. The default on part of the Guarantor thus has to be subsequent to the notice dated 01.10.2020 i.e. Non-payment within seven days as required.

32.

In view of the foregoing discussion, we arrive at following conclusions:

(i)

The Corporate Guarantee Deed dated 17.05.2019 is on demand guarantee deed and the default shall arise on the part of the Guarantor only when demand notice is issued as contemplated in the Deed of Guarantee. When the State Bank of India invoked the guarantee vide notice dated 01.10.2020, demand on the part of the Corporate Guarantee shall arise only subsequent to the notice dated 01.10.2020 i.e. non-payment of the amount within seven days i.e. default arise on 08.10.2020.”