Hon’ble Supreme Court in ‘Syndicate Bank vs. Chinnaveerappa Beleri & Ors.’ (2006) 11 SCC 506 and contends that the Limitation with respect to the ‘guarantee’ will run from the date, creditor had made a demand against the guarantor and further the ‘agreement’ and ‘incidents’ from the ‘guarantee agreement’ being distinct and independent, the limitation against the ‘guarantor’ will start running once the guarantee is invoked.
Excerpts of the order;
Overview
The Appellant /Promoter of Air Travel Enterprises India Ltd. / Corporate Debtor has preferred the instant Comp. App. (AT) (Ins.) No. 08 of 2024 before this Tribunal as an ‘Aggrieved’ person, in respect of the impugned order dated 22.12.2023 passed by the Adjudicating Authority/NCLT, Kochi Bench, Kochi in CP (IBC)/33/KOB/2023.
# 2. Earlier, the Adjudicating Authority / NCLT, Kochi Bench while passing the impugned order dated 22.12.2023 in CP (IBC)/33/KOB/2023 among other things at paragraph No. 19 to 21, had observed the following:-
“19. As far as the issue before us, on perusal of the records, we found that the IBA/01/KOB/2020 was initiated against the Corporate Debtor/Principal Borrower on 15.10.2020 by this Tribunal. Subsequently, the Corporate Debtor filed an appeal Hon’ble NCLAT and as per the order dated 09.11.2021, the Hon’ble NCLAT granted 6 months’ time period for settling the entire liability between the Financial Creditor and Corporate Debtor. It is also seen that the Corporate Debtor filed OTS proposals admitting the liability on 14.01.2022 and 19.03.2022 and sought time for settlement. But the Corporate Debtor did not comply with the direction of the Hon’ble NCLAT and due to the same reason, the Financial Creditor approached this Tribunal by filing CP(IBC)/46/KOB/2022 which was admitted by this Tribunal vide order dated 25.01.2023. Therefore, there is a continuous cause of action and we could come to a conclusion that the Company Petition has been filed within the prescribed period of limitation. Hence the contention taken by the Corporate Debtor regarding limitation has no force.
20. Issue No. iii . As there is a default in the payment of the financial debt, which has been confirmed by them in the counter affidavit that the Financial Creditor paid the money to the Corporate Debtor, we are of the view that the present application filed by the Financial Creditor satisfies all the definitions of “Financial Creditor”, “Default” and “Financial Debt” and qualifies for applying for Insolvency and Bankruptcy Code. By mentioning various procedural hurdles, the Corporate Debtor cannot wash off its hands in repaying the amount borrowed, which is a financial debt owed by them. Hence, there is a Creditor-Debtor relationship with them.
21. It is seen from the letters of guarantee dated 02.07.2010, 29.09.2012, 24.02.2014 and 12.01.2015 the application made by the Financial Creditor is complete in all respects as required by law, and it clearly shows that the debt has not been paid by the Corporate Guarantor. So, we are of the considered opinion that the present application of the Petitioner/Financial Creditor may be admitted under Section 7 of the IBC, 2016 and CIRP initiated against the Corporate Guarantor.”
and finally admitted the main Company Petition for initiating CIRP against the Corporate Guarantor M/s. Air Travel Enterprises India Ltd., declared moratorium and appointed Mr. Raj Mohan R. as an Interim Resolution Professional.
Appellant’s Contention
3. Challenging the impugned order dated 22.12.2023 in CP (IBC)/33/KOB/2023 passed by the Adjudicating Authority/NCLT Kochi Bench, the Learned Counsel for the Appellant contends that the Adjudicating Authority/Tribunal had erroneously admitted the main company petition.
4. It is represented on behalf of the Appellant that the Respondent/Union Bank of India, Thiruvananthapuram had granted a ‘term loan’, of Rs. 24.86 crore to GGL for the purpose of setting up ‘Resorts’, by way of ‘sanctioned Letter’, dated 12.06.2010 thereafter it was revised on 05.01.014. As a matter of fact, this loan facility, was renewed on 29.09.2012, 24.02.2014, 12.01.2015 and 01.07.2016. The ‘Corporate Debtor’, in support of this project had executed a ‘Corporate Guarantee’ on 02.07.2010, 29.09.2012, 24.02.2014 and on 12.01.2014 and later, the Account was classified as NPA on 30.09.2015, as per the version of the Bank.
5. According to the Appellant, the Appellant Group had undergone hardship from one side bearing ongoing maintenance of clearing weeds and grass on the sprawling 55 acre Leasehold property taken from ‘Bekel Resort Development Corporation Ltd.’ (BRDCL), Government of Kerala, bearing leasehold costs, and from the other side, made an investment of Rs. 126.60 Crore on the project of setting up Resorts on the Beach side, and paying interest costs of Rs. 61.40 to the Banks alone.
6. It is represented on behalf of the Appellant that despite all this hardship, the Appellant Group has never ceased their efforts to maintain servicing of the loans taken from the State Bank of India, Union Bank of India, (Financial Creditor Bank) and Dhanlaxmi Bank. But, owing to the delay that had occurred unfortunately, in completing the project, the group in the year 2015 had failed to service the Loan of Banks, which led ‘GGL’ into this Financial Crisis.
7. The Learned Counsel for the Appellant points out that as ‘GGL’ still investing in the project without any returns, it could not come out of the financial crisis and looking at this situation and as per their procedures, the bankers(Union Bank of India) and Dhanlaxmi Bank having authorized the State Bank of India to proceed against ‘GGL’ for realizing the dues outstanding, the State Bank of India had issued section 13(2) notice against ‘GGL’ and the ‘Guarantors’, including this corporate director, to repay the outstanding accrued to Rs. 96,04,97,895 (a) Rs. 53,01,79,190/- for SBI (b) Rs. 26,85,08,554/- for UBI and (c) Rs. 16,85,08,554 for Dhanlaxmi Bank as on 28.12.2017.
8. According to the Appellant, in the said notice dated 29.12.2017 the group of Banks, headed by State Bank of India had categorically demanded not only ‘GGL’ to repay the due outstanding in 60 days from the date of receipt of notice but also demanded the ‘Guarantors’ to pay the due outstanding and payable by ‘GGL’. Furthermore, in the notice it is on record, that the limitation against the ‘Guarantors’, must be reckoned from the date of the notice dated 29.12.2017.
9. The Learned Counsel for the Appellant points out, the Accounts having become NPAs, a financial Creditor, (UVI) on the request of ‘GGL’ dated 20.12.2019 had sanctioned ‘One Time Settlement’ on 27.11.2019 for Rs. 17.05 crores. No sooner did ‘GGL’ pay Rs. 25,00,000/- in respect of the ‘One Time Settlement’, then the ‘COVID’ effect set in and because of the pandemic situation, the investor backed out of the project, which ultimately failed ‘GGL’ clearing the ‘One Time Settlement’.
10. The Learned Counsel for the Appellant brings to the notice of this Tribunal that the Respondent / Bank, simultaneously filed Section 7 petition filed under I&B Code, 2016 vide (IBA/01/KOB/2020) before the Adjudicating Authority, NCLT, Kochi and that the Section 7 Petition was admitted on 15.10.2020. Against this order on 15.10.2020, an Appeal was filed before the Appellate Tribunal, explaining the Appellant’s intentions to clear the dues by the ‘One Time Settlement’. The Appellate Tribunal on 09.09.2021 was pleased to pass orders disposing of the Appeal, by granting liberty to ‘GGL’ to settle within six months from the date of the order, failing which the Respondent/Bank is at liberty to proceed against ‘GGL’. When the Respondent / Bank took up the matter before the Hon’ble Supreme Court of India, it was dismissed as withdrawn on 29.11.2021 (vide Civil Appeal No. 6916/2021.
11. It is projected on the side of the Appellant that ever since, ‘GGL’ pushed hard to persuade the Respondent / Bank to sanction ‘One Time Settlement’, while this process was in progress, the Respondent / Bank again on 06.08.2022 had filed CP (IBC)/46/KOB/2022 (under Section 7 of the I&B Code, 2016 against GGL, claiming Rs. 39,78,12,079/- wherein the Adjudicating Authority / Tribunal, Kochi on 25.01.2023 initiated the ‘Corporate Insolvency Resolution Process’ by admitting the Company Petition.
12. According to the Appellant, the Respondent/Bank filed a petition u/s 7 of the I&B Code, 2016 against the Corporate Debtor/Corporate Guarantor on 18.07.2023 claiming Rs. 42,87,27,148/- against the claim of Rs. 39,78,12,079/- admitted against GGL. Although, the Respondent/Bank filed a case against a ‘GGL’ as well as the Corporate Debtor, the Appellant’s group never gave up its endeavours in requesting the Respondent/Bank to settle this claim.
13. The Learned Counsel for the Appellant points out that the ‘GGL’ as soon as this Authority gave directions to settle it within six months the Appellant on 05.10.2021, 04.02.2022, 19.03.2022, 21.11.2022, 13.02.2023, 04.09.2023 and lastly on 18.09.2023 increased its ‘One Time Settlement Proposal’ to a sum of Rs. 11 crore.
14. According to the Appellant, the Respondent/Bank in line with the correspondence dated 06.12.2021, 01.02.2022, 21.03.2022, 02.12.2022, 20.02.2023, 13.03.2023 and on 20.09.2023 the Respondent / Bank wrote a letter mentioning that the regional Head of the Respondent/Bank had forwarded the offer of Rs. 11 crores, for examination by the Competent Authority. Again on 03.10.2023 the Bank wrote a letter requesting the Appellant to deposit an upfront sum equivalent to 10% of the offer amount and within two days, on 05.10.2023 the Appellant had deposited Rs. 1.10 crore, being 10% of the proposal tentatively agreed by the Bank. Also that, the Appellant had not asked for any extension of time, to pay the remaining balance after 10% of Rs. 11 crore was deposited.
15. Learned Counsel for the Appellant points out that the Respondent /Bank had sent a letter by the Appellant on 29.11.2023 stating that ‘no offer’, below the Running Ledger, Balance outstanding in the Account cane be considered for ‘One Time Settlement’ in the Account of ‘GGL’ with a request to improve the offer, atleast to a sum equal to the Running Ledger balance in the Account.
16. The Learned Counsel for the Appellant proceeds to take a plea that as soon as the ‘OTS proposal’ earlier agreed was rejected on 29.11.2023, the parties on the directions of the Hon’ble Bench, argued the case on 06.12.2023 and orders were reserved on the same day. On 22.12.2023, the Tribunal/Kochi Bank had pronounced the orders initiating ‘CIRP’ against the Corporate Debtor. In fact, no time was left to the Appellant, either to revise the proposal or even to approach the Respondent/Bank, to avoid this rigmarole against the ‘Corporate Debtor’.
17. The Learned Counsel for the Appellant brings to the notice of this Tribunal that in between, ‘DRDCL’, on 30.03.2022 had terminated the ‘Lease Agreement’ giving 55 acres of Govt. Land on lease Rs. 55 acres of govt. land, on lease, to the ‘Principal Borrower’. Later, when the Appellant had requested the Govt. to reconsider its decision in regard to the termination of the ‘Lease Agreement’, the Govt. of Kerala on 15.03.2023 stated that it would not reinstate the Lease that was terminated because of the fact that the project was built on the land leased out, once the land was taken back, the value of the project has become almost zero. Because of this reason, the Appellant could not make the OTS proposal, as made, prior to the ‘COVID Pandemic’.
18. It is brought to the notice of this Tribunal on behalf of the Appellant that the Respondent / Bank had filed a case against GGL, also State Bank of India filed a separate CP(IB)/43/KOB/2021 before the same Bench against GGL as a matter of fact, the Appellant Group had settled the account of State Bank of India by paying Rs. 28 crore against the outstanding of Rs. 56.29 crore and a no due certificate was issued by the State Bank of India on 12.05.2022 stating that the Loan Account of GGL was closed on receipt of the sum aforesaid as per compromise settlement. Resultantly, two Company Petitions were filed against GGL and its personal guarantor were withdrawn by State Bank of India on 24.05.2022 and 30.05.2022.
19. According to the Appellant, he entered into a One Time Settlement with Dhanlaxmi Bank for Rs. 11.88 crore out of the OTS agreed, the Appellant Group made a part payment of Rs. 1.5 crore and for the payment of balance acknowledgement from the Corporate Debtor after 29.12.2017, the claim against the Appellant herein, is barred by Limitation.
20. It is projected on the side of the Appellant that the Appellant had mentioned in the Reply to the Company Petition that the impugned order, passed by NCLAT on 09.09.2021 against the order of the Adjudicating Authority / Tribunal dated 15.10.2020 will not save the limitation against the Corporate Debtor unless, the computation of period of limitation is covered by anyone of the Sections of part III of the Limitation Act, 1963. In the order dated 09.09.2021, the Appellate Tribunal had not passed any order which could save limitation against the Guarantors.
21. According to the Appellant in the Reply he had stated that the OTS letters dated 27.11.2019 and 21.03.2022 given by GGL will not save limitation against the Corporate Debtor because the Respondent / Bank had invoked the Guarantee furnished by the Corporate Debtor on 29.12.2017 itself and, therefore, the Appellant sought for the dismissal of the Company Petition filed against the Corporate Debtor.
22. The Learned Counsel for the Appellant points out that the main plea of the Corporate Debtor before the Adjudicating Authority/Tribunal was (i) the default date should be before the account was declared as NPA, and since the notice u/s 13(2) of the SARFAESI Act was given on 29.12.2017 demanding the Guarantors to pay the due payable by GGL and there being no acknowledgement of debt by the Corporate Debtor, thereafter GGL subsequently submitted OTS proposal will not save limitation against the Corporate Debtor.
23. The Learned Counsel for the Appellant contends that it is an established proposition of law for the computation of the limitation period a specific duty is showered upon the person filing the petition to prove the date of default’. It is for any reason the person fails to prove the date of default, the petition is liable to be dismissed.
24. According to the Appellant computation of period is peremptory to decide whether a claim or remedy is barred by limitation. Further default will commence at a specific date and if that date is not crystallised the period of limitation cannot be computed and the Tribunal had failed to make this salient exercise.
25. It is the stand of the Appellant this his contention was that the Account being declared as NPA on 30.09.2015, the defaulting date would be a NPA date. Since the petition was filed on 22.09.2023 the NPA date being shown as 30.09.2015 and unless the Respondent/Bank has explained as to how the petition is saved by limitation, the petition is liable to be dismissed. Also, that when the Limitation Act, 1963 is made applicable to an enactment, no discretion is left to the Court / Tribunal to allow the petition, without answering the point of Limitation’.
26. According to the Appellant, the Adjudicating Authority/ Tribunal in Neelkant Township and Construction Ltd. V. Urban Infrastructure Trustee Ltd. (Vide Comp. App. (AT) (Ins.) 44 of 2017) had dealt with the Limitation point separately to say that the Limitation Act, 1963 is inapplicable to the I&B Code, 2016 because the ‘Code’ is not for Recovery of the ‘Money Claim’ and the submissions of the Corporate Debtor were not accepted by the Adjudicating Authority/Tribunal, in regard to the Limitation aspect in filing Section 7 petition before the Adjudicating Authority/ Tribunal. In fact, the Adjudicating Authority/ Tribunal had made an erroneous observation without looking into the amendment dated 06.06.2018, applying a Limitation Act to the Code.
27. The Learned Counsel for the Appellant submits that the Corporate Debtor had avoid a general term loan of Rs. 25 Crores on 12.06.2010 from the Respondent/Financial Creditor, which was later Renewed/Restructured and modified on various dates. Also that the Respondent/ Bank had filed IBA/ 01/KOB/2020 before the Adjudicating Authority/ Tribunal which was admitted on 15.10.2020. However, in Comp. App. (AT) (Ins.) 993 of 2020 the proceedings of the Adjudicating Authority/ Tribunal in IBA/ 01/KOB/2020 was challenged and ultimately the said Appeal was disposed of with a direction that if the ‘Corporate Debtor fails to settle in 6 months time from the date of this Order, the Respondent Bank is at liberty to take appropriate steps. Any observations made in this Appeal shall not stand in the way of any further proceedings, if initiated, Needless to add, the period spent in pursuing this Appeal shall be excluded for the purpose of limitation.’
28. It is represented on behalf of the Appellant that a fresh application under Section 7 of the Code was filed by the Appellant against the Corporate Debtor/ Air Travel Enterprises India Ltd. before the Appellate Tribunal in Comp. App. (AT) (Ins.) 70/ 2023. The Appellate Tribunal, finally, negatived the pleas of the Corporate Debtor and the CIRP as against the Principal Borrower was affirmed by this Appellate Tribunal.
29. The Learned Counsel for the Appellant points out the Committee of Creditors, later, had unanimously resolved to liquidate Principal Borrower/ M/s Green Gateway Leisure Ltd., an application in I.A IBC/462/KOB/2023 in CP(IB) /46/KOB/2022 was filed by the Resolution Professional before Adjudicating Authority/ Tribunal and an ‘order of liquidation’ against the Principal Borrower was passed on 24.11.2023. In fact, the Corporate Debtor viz. M/s Air Travel Enterprises India Ltd. and the Appellant Mr. E.M. Najeeb Ellias Mohamed had questioned order of liquidation in Comp. App. (AT) (Ins.) 464/2023 and ultimately the ‘Appeal’ came to be dismissed and the order of liquidation was affirmed.
30. The Learned counsel for the Appellant points out that the ‘Corporate Debtor/ M/s Air Travel Enterprises India Ltd.’ stood as ‘Corporate Guarantor’ for the Loans obtained by the ‘Principal Borrower’ and a guarantee deed/agreement in support of the same was/ were executed. The Respondent had initiated action by preferring a Section 7 Application against the Corporate Debtor, which was admitted on 24.11.2023 resulting in the ‘impugned order’ under challenged by the appellant.
31. The Learned Counsel for the Appellant refers to the Guarantee, executed by the Corporate Debtor (vide 66 onwards of the Appeal Paper Book) and the same runs as follows:
“It is also agreed that any admission or acknowledgment in writing by the Principal Debtor of the amount of indebtedness of the Principal Debtor or otherwise as in relation of the subject matter of this guarantor, shall be binding on me/us and I/We accept the correctness of any statement of account served on the Principal Debtor which is duly certified by any Manager or Officer of the Bank and the same shall be treated as my/our duly authorized agent for purpose of Indian Limitation Act, 1963.”
32. The Learned Counsel for the Appellant points out that the Adjudicating Authority/ Tribunal had referred to a decision in Manmohan Singh Jain V. M/s State Bank of India & Anr. (vide Comp. App. (AT) (CH) (Ins.) 97 of 2021) to say that the non-mentioning of the ‘Date of Default’ in Part-IV of the application in Form-1 was ‘not fatal’, to an Application under Section 7 of the Code wherein the Appellate Tribunal, relied upon the decision in Surendra Trading Co. V. Juggilal Kamlapat Jute Mills Company Ltd. & Ors. (2017) 16 SCC 143 stating that the prescribed period of 7 days for curing the defect, as per Section 7(5) of the Code and 14 days specified for adjudication of an ‘insolvency petition’ as mentioned in Section 10(4) of the I&B Code, 2016 are only ‘directory’ and not a ‘mandatory’ one.
33. According the Appellant, the Application under Section 7 of the Code, initiated against the Appellant is a time barred one, from the date of ‘Non-Performing Asset’ or the date of signing the Last Guarantee Agreement dated 24.02.2014.
34. Furthermore, the Learned Counsel for the Appellant points that the facts of the case in Laxmipat Surana’s case are different from the facts of the present case, that the ‘Guarantor’ took a stand that when the ‘Principal Borrower’ is not a Corporate person, under I&B Code, 2016 is ‘inapplicable’’ against the ‘Corporate Debtor’ to ‘initiate a proceedings’, under Section 7 of I&B Code, Section 7 petition of the Code, would not lie, against the ‘Guarantor’ and on this ground, ‘no notice’ was given and there was no ‘acknowledgement’ from the ‘Guarantor’, at any point of time, within 9 years before the filing of the Company Petition.
35. Therefore, the Learned Counsel for the Appellant submits that the Hon’ble Supreme Court therefore held that the ‘Debt’ being guaranteed by the Corporate Debtor, Section 7 petition will lie against the ‘Corporate Guarantor’, irrespective of the fact, whether or not, the ‘Principal Borrower’ is a Corporate person and the debt being acknowledged by the Corporate Guarantor within 3 years before filing the Company petition against the Corporate Guarantor and the claim against the Corporate Guarantor is within the period of Limitation on computation of the prescribed period from the date of last Acknowledgment.
36. According to the Learned Counsel for the Appellant, in the present case, a notice was served on the Corporate Debtor/ Guarantor on 29.12.2017, demanding payment from the Guarantor with explicit statement that the limitation against the Guarantor will be reckoned from the date of the notice dated 29.12.2017.
37. The Learned Counsel for the Appellant refers to the decision of the Hon’ble Supreme Court in Syndicate Bank V. Chinnaveerappa Beleri & Ors., reported in 2006 11 SCC 506 that the limitation in regard to the ‘Guarantee’ will run from the date of the Creditor made a demand against the Guarantor. In fact, the Agreement and the incidents from the ‘Guarantee Agreement’ being distinct and intendent the limitation against the Guarantor will start running once the Guarantee is invoked. Also that once the “Limitation period’ had commenced/ running, as mentioned in Section 9 of the Limitation Act, 1963 it will not stop running, unless a factual situation governed by the Limitation Act had occurred.
38. According the Appellant in the present case, having the creditor’ invoked the Guarantee on 29.12.20217 by mentioning that the Limitation will be reckoned from the date of receipt of the notice dated 29.12.2017 the actions and acknowledgment between the Lender and the Principal Borrower will not save the ‘Limitation period’ already begun against the ‘Guarantor/ Corporate Debtor’ and hence, the Limitation has begun from 29.12.2017 and hence, the decision in Surana’s case is inapplicable to the present Appeal.
39. The Learned Counsel for the Appellant, points out that the ‘Demand’ made against the Appellant on 29.12.2017, to ‘pay the dues’ payable by the ‘Principal Borrower’, the Appellant, having not paid either part payment or acknowledge the liability against it, at any point of time after 29.12.2017, the Respondent/ Bank ought to have explained how this ‘default date’ 09.03.2022 has come into existence and the ‘Bank’ and the ‘Tribunal’ had not any endeavor to deal with this default date not being supported by any factual event.
40. The Learned Counsel for the Appellant contends that the action against the Corporate Guarantor is barred by Limitation and Article 137 of the Limitation Act, 1963 applies squarely and adverts to the decision of the Hon’ble Supreme Court in the matter of Assets Reconstruction Company (India) Ltd. V. Tulip Star Hotels Ltd. Ors. (Vide Civil Appeal no. 84-85 of 2020 (2019) 10 SCC 572).
41. The Learned Counsel for the Appellant brings to the notice of this Tribunal that the Corporate Guarantor/ Corporate Debtor had made an effort to settle the sum with the Respondent/ Bank and gave an offer to ‘OTS’ a sum of Rs. 13.5 Crores on 05.02.2024 with an upfront demand draft of Rs. 1.25 Crores in favour of Respondent/ Bank.
42. The Learned Counsel for the Appellant submits that the ‘lives of 250 workers’ are at ‘stake’ and the Corporate Debtor have made continuous efforts to settle the Loan amicably but the Respondent/ Bank had rejected the offer of the Appellant. Even when the Learned Senior Counsel had offered Rs. 14 crores during the hearing, the Respondent/ Bank Ld. Senior Counsel had rejected the same. Therefore, it is clear that the Respondent/ Bank is proceeding against the Corporate Guarantor with vengeance, although, the claim against the Corporate Guarantor is barred.
43. According to the Appellant, the Principal Borrower had secured the Loan from State Bank of India and Dhanlaxmi Bank which was settled by the Promoter or Corporate Debtor through ‘one time settlement’ and the same is depicted, in tabular form as under:
Financial Creditor | Outstanding Liability as on OTS proposal | Settled through OTS | Status (Amt in crores) |
State Bank of India | 72.63 | 28.00 | Settled & given NOC |
Dhanalakshmi Bank | 36.07 | 11.88 | Settled & given NOC |
44. According to the Appellant the Respondent/ Bank cannot charge an interest arbitrarily after the ‘Non-Performing Asset’ date, but the Bank/ Respondent had charged interest at any exorbitant rate and other charges, even after the NPA date, which is ‘illegal’. The Bank/ Respondent as claimed and demanded from the Corporate Debtor as follows:
Union Bank of India | Principal | Interest/ Penal interest | Other charges | Total Due |
Default Amount
as on 04.07.2023 | 24,85,00,000 | 40,82,83,110 | 80,28,632 | 66,48,11,742 |
Less:
Recovery | | | | 23,60,84,594 |
Total dues as on 04.07.2023 | | | | 42,87,27,148 |
45. According to the Appellant, the Appellant had settled with a Respondent/ Bank viz. Rs. 23,60,84,595/-, 95% of the principal amount was already settled. The Appellant had now offered the one-time settlement of Rs. 14 Crores and with this proposed settlement the Corporate Debtor intends to settle the whole principal amount, as well as significant portion of interest, being beneficial to the respective parties.
46. The Learned Counsel for the Appellant points out that though the intention of I&B Code, 2016 is Resolution, the Respondent/Bank is rejecting all the OTS proposal with vengeance and push the Corporate Debtor into Liquidation and ATE (Corporate Guarantor) to Liquidation. In fact, the Corporate Debtor had invested more than Rs. 185/- crores and when the Company is pushed into Insolvency, all the amounts invested by the promoters will go to drain.
47. According to the Appellant, the intention of the promoters, is to settle the ‘entire dues’ and the dues of State Bank of India and Dhanlaxmi Bank were settled and serious endeavors are made to settle the Respondent/ Bank also and the Corporate Guarantor/ Appellant request this ‘Appellate Tribunal’ to grant six months time to the Appellant to negotiate with the Bank and to settle the dues with the Bank amicably and till the OTS settlement is reached, the Corporate Guarantor CIRP process may be stayed instead of pushing the company into ‘CIRP’.
Respondent/Bank’s pleas:
48. The Learned Sr. Counsel for the Respondent/ Bank contends that the Appellant and the Corporate Debtor had executed a Personal Guarantee in favour of the Respondent/ Financial Creditor, guaranteeing to re-pay the principal with interest, in the event of any default committed by the Principal Borrower. Apart from the Guarantees, there was also an execution of ‘Demand Promissory Note’, the hypothecation of movables of principal borrower / Green Gateway Leisure Ltd., in addition to creation of Equitable Mortgage security among others to secure the Loan.
49. According to the Respondent/Bank the principal borrower had failed to repay the loan sums inspite of repeated demands made by the Respondent bank and the account was classified as NPA as per RBI guidelines. Hence, a demand was made against the Corporate Debtor to make payment due to the Respondent/Bank. There was no response and the Respondent/Bank had filed IBA/ 01/KOB/2020 before the Adjudicating Authority NCLT, Kochi Bench and the same that was admitted on 15.10.2020.
50. The Ld. Sr. Counsel for the Bank points out that in Comp. App. (AT) (Ins.) 993 of 2020, the Appellate Tribunal on 09.09.2021 had ultimately opined that the object of the Code 2016 is not a recovery one and disposed of the Appeal with a direction that ‘if the ‘Corporate Debtor’ fails to settle in 6 months time from the date of this Order, the Respondent Bank is at liberty to take appropriate steps. Any observations made in this Appeal shall not stand in the way of any further proceedings, if initiated, Needless to add, the period spent in pursuing this Appeal shall be excluded for the purpose of limitation’.
51. The Learned Counsel for the Respondent/ Bank points out that based on the Liberty being granted by this Appellate Tribunal and because of the default committed by the Principal Borrower and a fresh application was filed (Under Section 7 of the I&B Code, 2016) for the default committed which was admitted on 25.01.2023 by the Adjudicating Authority/ Tribunal. An Appeal was preferred by the Appellant and the Corporate Debtor/Air Travels Enterprises Pvt. Ltd. before the Appellate Tribunal which was numbered as Comp App (AT) (Ins.) 70 of 2023 and on 29.03.2023, in Appeal an order was passed affirming the CIRP against the Principal Borrower.
52. It is brought to the fore on behalf of the Respondent/Bank that the Committee of Creditors had unanimously has resolved to liquidate the Principal Borrower and IA IBC/462/KOB/2023 was filed in CP (IB) 46/KOB/2022 by the Resolution Professional before the Adjudicating Authority/ Tribunal and on 24.11.2023 a liquidation order was passed against the Principal Borrower. The Corporate Debtor/ M/s Air Travels Enterprises India Ltd. and the Appellant E.M. Nazim Ellias Mohamed had assailed the order of liquidation in Comp. App. AT (Ins.) 564/ 2023. The Appeal came to be dismissed preferred by the Appellant and the order of Liquidation was upheld. Therefore, on the basis of confirmation of the order of CIRP and Liquidation it is proved beyond that the Principal Borrowers commission of default was validated by the Competent Authorities.
53. It is represented on behalf of the Respondent/Bank that M/s Air Travel Enterprises India Ltd., stood as a Corporate Guarantor in respect of the Loans availed by the Principal Borrower had duly executed Guarantee Deed Agreements in support of the same the Bank/Respondent/Financial Creditor had filed a Section 7 application under I&B Code against the Corporate Debtor, which came to be admitted on 24.11.2023, culminating in the impugned order under challenged, by the Appellant.
54. According to the Respondent/ Bank the ‘Liability of the Guarantor is co extensive’ with the ‘Principal Borrower’ and hence the Appellant cannot stake a claim that the Admission against a Corporate Debtor is an illegal one.
55. The Ld. Counsel for the Bank contends that the Guarantee is a continuing and an irrevocable one and the ‘Corporate Debtor’ having executed the Guarantee in favour of the Debts due and payable by the Principal Borrower cannot wriggle out of its contractual obligations. As a matter of fact, there were many Acknowledgement of Debts made by the principal borrower with the Respondent/ Bank and some of the one time settlements attached provided by the ‘Principal Borrower’ will clinch the case of the Respondent/ Bank that the Application filed by the Respondent under Section 7 of the Code, against the Corporate Debtor is well within time.
56. The Ld. Counsel for the Respondent/ Bank submits that the Principal Borrower had executed on 12.11.2019, a proposal for One Time Settlement, the Principal Borrower on 27.11.2019 had executed a revised letter of approval issued by the Bank to GGL, the Principal Borrower on 05.10.2021 had executed the One Time Settlement Proposal on 14.01.2022, the Principal Borrower had issued a letter requesting for the sanction of One Time Settlement, the Principal Borrower on 04.02.2022 had issued a letter stating that the Borrower would mention the proposed sum along with an upfront payment, during second half of February, 2022, the Principal Borrower on 19.03.2022 had issued a letter giving the One Time Settlement Proposal for Rs. 09 crores, on 21.11.2022 the Principal Borrower had issued a letter requesting for the OTS at Rs. 09 crores stating that already Rs. 23.06 crores were paid against the Loan of Rs. 25.85/- crores, considering the impact of COVID 19 Pandemic of Hospitality Sector.
On 13.02.2023, the Principal Borrower had executed a letter dated 13.02.2023 in regard to the letters furnished by GGL to the Respondent / Bank expressing their inability to improve the OTS offer because the project was not operational and considerable investment was required for completion of the project. On 10.08.2023, Principal Borrower had executed a letter revising the proposal of OTS for Rs. 10 crores. On 18.09.2023 the Principal Borrower had written a letter to the Respondent / Bank increasing their offer to Rs. 11 crores. On 05.10.2023 a letter of the Principal Borrower was addressed to the Respondent / Bank mentioning that the Borrower had remitted Rs. 1.10 crore, 10% of the settlement offer of Rs. 11 crores. The Principal Borrowers audited Financials for the year ending 31.3.17, 31.3.18, 31.3.19, 31.3.20, 31.3.21,31.3.22 indicate that the acknowledgement of debts by the Principal Borrower.
57. The Ld. Counsel for the Respondent/ Bank points out that the acknowledgments will demonstrate that the application filed by the Respondent/ Bank is within the period of limitation and the Plea of the appellant that the claim being barred against the Corporate Debtor is an incorrect one.
58. The Learned Counsel for the Respondent/ Bank submits that once it is clear that the default committed by the Principal Borrower which was accepted by this Tribunal in Comp. App. (AT) (Ins.) 70 of 2023 (dated 29.03.2023) and in Comp. App. (AT) (Ins.) 464 of 2023 (dated 24.01.2024), then there is no question of the Corporate Debtor/ Guarantor taking a plea otherwise, in view of the Liability of the Guarantor/Corporate Debtor in law is ‘co-extensive’ with that of the Principal Borrower as per Section 128 of the Indian Contract Act, 1872.
59. The Ld. Counsel for the Respondent/ Bank points out that Section 7 petition filed by the Respondent/ Bank is not barred by ‘Res judicata’ and the same is well within the period of limitation. Also that, even assuming that the date of default if 29.12.2017, as per the stand of the appellant, the date of default, due to the invocation of guarantee being made on the date the principal borrower as clearly acknowledged were admitted which, will bind the Appellant/ Corporate debtor/Guarantor as per decision of the Hon’ble Supreme Court in Laxmipat Surana case (where in para 38 it is observed as under).
“38. In the present case, the NCLT as well as the NCLAT have adverted to the acknowledgements 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 acknowledgement 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 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.
60. The Ld. Counsel for the Respondent/ Bank refers to the decision in Bijay Kumar Agarwal V. State Bank of India in Comp. App. (AT) (Ins.) 105 of 205 wherein in para 20 it is observed as under:
“20……..It is also well settled that limitation for filing Application under Article 137, the provisions of Section 18 of the Limitation Act are also attracted and in even the parties are able to satisfy the Court that they are entitled for extension of limitation, the Application under Section 7 even filed beyond three years from the date of declaring of NPA, will be within limitation when acknowledgement was made within the period of limitation. We thus find no substance in the submission of Shri Joy Saha that by filling the OA 493 of 2015 on 24th September, 2015, limitation shall stop running for section 7 Application and section 7 Application even filed beyond three years from the date of NPA is entertainable on this ground.”
Acknowledgement
61. An ‘Acknowledgment’ means an Admission for the truth of one’s liability. The necessary factor that is required is an Admission of the existence of a Debt, liability for contribution in case, a part of it is paid and such an Admission would enlarge the Limitation period, in the considered opinion of this Tribunal.
62. The salient feature of an Acknowledgement are:
(a) The acknowledgement of the debt should be writing
(b) it should be made by a person against whom the liability is claimed or by person through whom, he derives title or liability
(c) the acknowledgment should be made before the lapse of the specified period for a suit, or an application
(d) it must indicate the intention to admit the jural relationship of Creditor and Debtor as per decision of the Hon’ble Supreme Court in S.F. Mazda V. Durga Prasad AIR 1961 SC 1236.
(e) must contain admission of an existing liability. Mere admission of a first liability will not suffice as per decision of Hon’ble Supreme Court in Velliamma V. Sivanathan, AIR 1979 SC 1937.
63. In Law an Acknowledgment as per Section 18 of the Limitation Act, 1963 is to be within three years of the date on which the sum becomes payable as per decision in Free India Dry Accumulators Ltd. V. Union of India, 2012 AIR Civil Cases Page 3- 5 (Delhi). No wonder an Acknowledgment as per Section 18 of the Limitation Act, 1963 only renews a debt and it does not make out a new right or a fresh cause of action.
64. If an Acknowledgement is valid, the Liability can be enforced and the sum required from any realisable Assets whether acquired before or after the acknowledgement, as per decision in Mathew Joseph & Ors. V. Dy. Tehsildar (RR) Changanassery & Anr. reported in AIR 2006 (NOC 675 Kerala).
65. An Acknowledgement for liability itself is sufficient and it need not necessarily be accompanied by a promise to pay as per decision in Hetal Enterprises V. New India Assurance Company Ltd. 2012 (1CCC 458 Bom). Further, an Acknowledgement under Section 18 of the Limitation Act, 1963 can be with respect to not only the property or Right, but it can be even in regard to the Liability.
66. An Acknowledgement of a liability made by the Principal Borrower should be considered as an Acknowledgement of liability, on behalf of Guarantor.
67. A Revival Letter/ an Acknowledgement, executed by the Principal Borrower on the authorization binds the Guarantor.
68. At this stage, this Tribunal aptly points out that an acknowledgment of debt by the Principal Borrower shall be binding on the Guarantor also as per decision in Omprakash V. UCO Bank, as per decision in 2005 (9) Current Civil Cases reported in AIR at page 382.
69. In the decision in Syndicate Bank V. UVK Prakash reported in 2008 (1) CCC Page 142 (Madras), it is held that since the Borrower had acknowledged his liability, the Acknowledgement will be binding on the Guarantor as well.
70. At this stage, this Tribunal worth recalls and recollect the decision in Punjab National Bank Vs. M/s Jain Wood House, reported in 2014, AIR CC at page 1246 (Rajasthan) it is observed that as per condition no.9 of the guarantee agreement, the Principal Borrower was authorised by the Guarantor to sign the documents in regard to the acknowledgement of validity for the purpose of limitation also that the said acknowledgement is binding on the Respondent/ Defendant No. 3.
71. Before the Adjudicating Authority/Tribunal the Respondent/Bank in the Application (filed under Section 7 of the I & B Code, 2016 read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority), Rules, 2016 in Part -IV, under the caption particulars of Financial Debt, it is mentioned that the Respondent/Bank/Financial Creditor had granted a term Loan Facility of Rs. 25 Crores to the Corporate Debtor by a sanction Letter dated 12.06.2010, which was Renewed/Restructured/Modified on dates such as 29.09.2012, 24.02.2014, 12.01.2015 and 01.07.2016 by executing the loan documents. Further, the disbursement on different dates, had commenced from 31.07.2010 which is evident from the ‘Statement of Account’.
72. The total amount defaulted by the Appellant/Corporate Debtor as on 04.07.2023 is Principal Sum Rs. 24,85,00,000/- and the interest comes to Rs. 40,72,84,195/-, Additional/ penal interest comes to Rs. 9,98,915/- and other charges Rs. 80,28,632/- and the amount comes to Rs. 66,48,11,742/-. The recovered amount being Rs. 23,60,84,594/- and Rs. 42,87,27,148/- to be recoverable from the Corporate Debtor.
73. According to the Financial Creditor/Bank, the Corporate Debtor had committed default in the repayment of the credit facility in violation of the sanction stipulations, the loan documents and the Accounts of the Corporate Debtor was classified as a ‘Non-performing Asset’ as on 30.09.2015. Moreover, as per Section 13(2) the Corporate Debtor and the Guarantors under the SARFAESI Act, 2002 were given the notice to pay the amount with direction to repay the Loan immediately.
74. As a matter of fact, the said notice was received on 03.01.2018 and the Corporate Debtor gave a Reply on 27.02.2018 and despite the Reply, the amount was not repaid or liquidate the liability by the Corporate Debtor and Guarantors because of the Corporate Debtor not making the payment, the Respondent/Bank/Financial Creditor not making the payment, the Respondent/Bank had filed IBA/01/KOB/2020 which was admitted and a Resolution Professional was appointed.
75. The Corporate Debtor had approached this Appellate Tribunal in CA (AT) (Ins) No. 993 of 2020 being allowed by setting aside the order of admission ‘granted by this Tribunal and the Corporate Debtor was directed to settle the entire loan liability, within a period of six months from 09.09.2021. Though in various communications the Corporate Debtor had admitted the liability and sought time to settle the liability there was no constructive effort to clear the outstanding liability of the Respondent/Financial Creditor/Bank. Since, the Corporate Debtor had failed to adhere to the terms and conditions of the Loan facility and fulfilment of the liability, including the repayment, the Financial Creditor/Bank had decided to proceed with the instant Application. The date on which the default had occurred was mentioned as 09.03.2022.
76. In Form no. I Part-V of the Application it is mentioned that Paripassu First charge of all movable and immovable assets of the company both present and future along with other Lenders under the MBA including mortgage of leasehold rights of 55.42 Acres of land plus building in Keekan and Chittari Village situated as Hosdurg Taluk, Kasargod District, Kerala standing in the name of Green Gateway Leisure Ltd. The date of creation of charge was mentioned as 02.07.2010 and 19.12.2011 and the property valued is mentioned as Rs. 65 Crores by the Approved valuer and the value as consultant, as on 28.11.2018.
77. It comes to be known that the Respondent/Bank/Financial Creditor had issued a sanction letter dated 12.06.2010 in favour of the Corporate Debtor, approving the term facility of Rs. 25 Crores subject to the terms and conditions thereof. As a matter of fact, the Corporate Debtor had executed ‘Demand Promissory Notes’ dated 02.07.2010, 29.09.2012, 24.02.2014, 12.01.2015 & 01.07.2016.
78. The Corporate Debtor had executed the term loan agreement dated 02.07.2010, 29.09.2012, 24.02.2014 and 12.01.2015. Also the Corporate Debtor had executed the Term Loan Agreement (Hypothecation of Movables) dated 02.07.2010 and 29.09.2012. Moreover, M/s. Air Travel Enterprises India Ltd. had executed a corporate guarantee in favour of the Respondent/Bank/Financial Creditor guaranteeing and simultaneously personal guarantee also was executed with the same terms and conditions applicable with respect to personal guarantee undertaking the Repayment of the entire term Loan Amount and interest in the event of Default.
79. According, to the Respondent/Bank/Financial Creditor, the Corporate Debtor had executed a written confirmation of Deposit of title deed dated 20.12.2011, in favour of the Financial Creditor/Bank and the Debit Balance confirmation Letters dated 29.09.2012, 31.03.2013 & 31.12.2013 were executed by the Corporate Debtor in favour of the Respondent/Bank/Financial Creditor.
80. In the instant case on hand before this Tribunal the Appellant has come out with a plea that so long as the Guarantee is not invoked against the Guarantor, the Liability will remain coextensive and the account will remain live against the Guarantor, along with the ‘Principal Borrower’ and whatever action the ‘Principal Borrower’ does for extension of limitation will automatically extends against the Guarantor.
81. According to the Appellant in the instant case, the creditor had invoked the ‘Guarantee’ on 29.12.2017 by specifically mentioning that the Limitation would be reckoned from the date of receipt of Notice dated 29.12.2017 and the actions and acknowledgments between the ‘Lender’ and Principal Borrower will not save the Limitation period already commenced against the Guarantor/ Corporate Debtor.
82. The plea of the Appellant is that the ‘action’ as far as the Corporate Guarantor is concerned, the same is barred by Limitation and that Article 137 of Limitation Act 1963 applies.
83. The Learned Counsel for the Appellant points out the decision of the Hon’ble Supreme Court in ‘Syndicate Bank vs. Chinnaveerappa Beleri & Ors.’ (2006) 11 SCC 506 and contends that the Limitation with respect to the ‘guarantee’ will run from the date, creditor had made a demand against the guarantor and further the ‘agreement’ and ‘incidents’ from the ‘guarantee agreement’ being distinct and independent, the limitation against the ‘guarantor’ will start running once the guarantee is invoked.
84. The Learned Counsel for the Appellant points out that in the instant case the creditor had invoked the ‘Guarantee’ on 29.12.2017 by mentioning that the Limitation will be reckoned from the date of receipt of notice dated 29.12.2017 and further it is not the case of the Corporate Debtor that it had not executed the letters of guarantee, as aforementioned and this observation is ‘inconsequential’ for an admission of the Company Petition.
85. Before this Tribunal the Respondent/Bank had filed a ‘Reply’ to the main CA (AT) (CH) (Ins) No. 8 of 2024 stating that the issue of debt due and payable by the ‘Principal Borrower’ was based on various acknowledgement and assurances made by the Principal Borrower, by way of one time settlement offers among other documents and it was solely due to the liberty granted by this Appellate Tribunal that a period of six months was provided to the Principal Borrower, failing which the Respondent/Bank will be at liberty to take appropriate steps and that apart, the limitation period was also excluded.
86. The Learned Counsel for the Respondent/Bank points out that in view of the default committed by the Principal Borrower, a fresh application under Section 7 was filed for the default committed, which came to be admitted by way of an order dated 25.01.2023.
87. The CA (AT) (Ins) 70 of 2023 was filed by the Appellant and the Corporate Debtor/Air Travel Enterprises India Ltd. before this Tribunal and by an order dated 29.03.2023 the ‘CIRP’ against the ‘Principal Borrower’ was affirmed by this Tribunal.
88. Later, the Committee of Creditors had filed the IA IBC/462/KOB/2023 in CP IB/46/KOB/2022 through Resolution Professional before the Adjudicating Authority/Tribunal on 24.11.2023 had passed an order of liquidation against the Principal Borrower. The Corporate debtor/ Air Travel Enterprises India Ltd. had filed CA (AT) (Ins) 464 of 2023 before this Tribunal and the same came to be dismissed wherein the order of Liquidation was upheld.
89. According to the Respondent/Bank, the Corporate Debtor/M/s Air Travel Enterprises India Ltd. stood as corporate Guarantor for the Loans secured by the ‘Principal Borrower’ and duly executed Guarantee Agreements and the Respondent/Bank initiated action in filing a Section 7 application of the I&B Code, 2016 against the Corporate Debtor which was admitted on 22.12.2023 culminating in the impugned order under challenged by the Appellant.
90. According to the Respondent/Bank the liability of a Guarantor is co-extensive with that of the Principal Borrower and the guarantee executed by the Corporate Debtor in and an unequivocal term reads as under:
“It is also agreed that any admission or acknowledgment in writing by the Principal Debtor of the amount of indebtedness of the Principal Debtor or otherwise as in relation of the subject matter of this guarantor, shall be binding on me/us and I/We accept the correctness of any statement of account served on the Principal Debtor which is duly certified by any Manager or Officer of the Bank and the same shall be treated as my/our duly authorized agent for purpose of Indian Limitation Act, 1953”.
91. The plea of the Respondent/Bank is that the Corporate Debtor having executed the Guarantee in favour of the debts due and payable by the Principal Borrower, cannot wriggle out of its contractual obligations.
92. Even, taking into account that the date of default is 29.12.2017 as adverted to by the Appellant, which is the default date due to the invocation of guarantee being made on that date, the Principal Borrower had clearly admitted/acknowledged its liability, which squarely binds the Corporate Debtor/Guarantor in the considered opinion of this Tribunal especially in the teeth of the Hon’ble Supreme Court’s decision decision in ‘Laxmi Pat Surana vs. Union of India & Anr. (2021) 8 SCC 481.
93. As per the decision of Hon’ble Supreme Court in Laxmi Pat Surana’s case as referred to supra, the liability of the Guarantor being co-extensive with the Principal Borrower under Section 128 of the Indian Contract Act, 1872 it triggers the moment the Principal Borrower commits default in paying the acknowledge debt and this being a legal fiction and such a ‘liability of the guarantor will flow from the Guarantee Deed and Memorandum of Mortgage created therein’.
94. The Learned Counsel for the Respondent/Bank points out that the Corporate Debtor being ‘Corporate Guarantor’ for the loans availed by the Principal Borrower, undoubtedly the ‘cause of action’ against it is also equally alive, in view of its liability being co-extensive with that of the ‘Principal Borrower’.
95. The Learned Counsel for the Respondent/Bank points out that an Application under Section 7 of the I & B Code, 2016 can be filed both against the Principal Borrower and the Guarantor when that be the case, it is not open to the Appellant to state as if the Application filed by the Respondent/Bank is either barred by limitation or that the Corporate Debtor is not liable to pay the amounts due and payable by the Principal Borrower.
96. The Learned Counsel for the Respondent/Bank comes out with a plea that taking note of the fact that Insolvency Proceedings were initiated against the Appellant, which he had challenged in CA (AT) (Ins) 71 of 2022, he does not have the Locus standi to prosecute the instant ‘Appeal’, in terms of the requirements of Section 61 of the I & B Code, 2016.
97. On a careful consideration of respective contentions, this ‘Tribunal’, taking note of the facts and circumstances of the instant case in an encircling manner, and ongoing through the impugned order dated 22.12.2023 in CP(IBC)/33/KOB/2023 passed by the Adjudicating Authority/NCLT Kochi Bench, comes to a resultant conclusion that the conclusion arrived at by the Adjudicating Authority/Tribunal in admitting main CP (IBC)/33/KOB/2023 on 22.12.2023 holding that the debt has not been paid by the ‘Corporate Guarantor’ is free from any legal flaws. Accordingly, the ‘Appeal’ sans merit.
Conclusion
98. In fine, the instant CA (AT) (Ins) 8 of 2024 is dismissed. No costs. The connected pending IA’s if any are closed.
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