Anand Murti Vs. Soni Infratech Pvt. Ltd. & Anr. - Hon'ble Supreme Court found that it will rather be in the interest of the home­buyers that the appellant/promoter is permitted to complete the project as undertaken by him.

 Supreme Court (27.04.2022) in Anand Murti Vs. Soni Infratech Pvt. Ltd. & Anr. [Civil Appeal Nos. 7534 of 2021] permitted the promoter to complete the housing project observing; 

• We find that there is every possibility that if the CIRP is permitted, the cost that the home­buyers will have to pay, would be much higher, inasmuch as the offer made by the resolution applicants could be after taking into consideration the price of escalation, etc. As against this, the Promoter has filed a specific undertaking specifying therein that the cost of the flat would not be escalated and that he would honour the BBA signed by the previous management.

Excerpts of the order;

# 1. The present appeal challenges the order passed by the National Company Law Appellate Tribunal, Principal Bench, New Delhi (hereinafter referred to as “the NCLAT”) dated 22nd November, 2021, in I.A. No.1115 of 2020 in Company Appeal (AT) (Insolvency) No. 1507 of 2019, thereby rejecting the Modification Application filed by the appellant herein. Vide the impugned order, the NCLAT observed that, in the meantime, if settlement takes place between the parties for completion of the housing project, the same can be filed under Section 12A of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “the IBC”) before the Adjudicating Authority. The NCLAT also directed the Interim Resolution Professional (“IRP” for short)/Resolution Professional (“RP” for short) to hold the meeting of the Committee of Creditors (hereinafter referred to as “CoC”) within ten days from the date of order and decide the future course of action about a resolution for completion of the Corporate Insolvency Resolution Process (hereinafter referred to as “CIRP”) of the respondent No.1­company (hereinafter referred to as “the Corporate Debtor”).

# 2. The facts in brief giving rise to the present appeal are as under:

# 3. The appellant herein is the Suspended Director of the Corporate Debtor. The respondent No.2 herein had booked a flat in the housing project launched by the Corporate Debtor. Subsequently, vide a letter dated 31st July, 2018, the respondent No.2 cancelled the booking and demanded refund of the amount of Rs.32,27,591/­ from the Corporate Debtor.

# 4. On failure of the appellant in refunding the amount, the respondent No.2 filed an application under Section 7 of the IBC against the Corporate Debtor for initiation of CIRP before the National Company Law Tribunal, New Delhi (hereinafter referred to as “the NCLT”). The NCLT vide order dated 22nd November, 2019, admitted the said application and appointed an IRP. The IRP was directed to initiate the CIRP of the Corporate Debtor as per the provisions of the IBC.

# 5. The appellant being aggrieved by the order dated 22nd November, 2019, filed an appeal before the NCLAT, being Company Appeal (AT) (Insolvency) No.1507 of 2019. The NCLAT vide its order dated 19th December, 2019, issued notice and passed an interim order, thereby directing the IRP not to constitute CoC.

# 6. It was submitted by the appellant herein before the NCLAT that he was ready and willing to settle the matter with the respondent No.2. It was further submitted by him that the project was complete almost to the extent of 70-­75% and that he had arranged the funds/private financier to complete the project.

# 7. In light of the submission made by the appellant herein, the NCLAT vide order dated 31st January, 2020, directed the appellant herein to file proposed settlement terms/plan disclosing all material particulars with regard to completion of the housing project. Accordingly, the appellant herein submitted/filed the proposed settlement terms/plan on 13th February, 2020. The IRP had submitted his status report a day prior, on 12th February, 2020, stating therein that most of the Allottees decided to have possession of the flats. In the meantime, the appellant settled the matter with the respondent No.2 herein. Despite the settlement with the respondent No.2 and appellant’s readiness and willingness to complete the project, the NCLAT, vide order dated 26th February, 2020, modified the interim order dated 19th December, 2019 and directed the IRP to go ahead with the constitution of CoC and carry forward the CIRP. The said order dated 26th February, 2020 was passed by the NCLAT on the ground that the settlement arrived at by the appellant was only with the respondent No.2 and the settlement plan did not encompass all the Allottees.

# 8. The appellant therefore approached this Court by way of Civil Appeal No. 1928 of 2020. This Court vide order dated 5th March, 2020, permitted the appellant to approach the NCLAT for modification of the order dated 26th February, 2020, so as to present the settlement plan covering all the Allottees. Vide the said order of this Court dated 5th March, 2020, liberty was also granted to the appellant to approach this Court again in case the modification application was not allowed.

# 9. Pursuant thereto, the appellant filed the modification application being I.A. No.1115 of 2020 in Company Appeal (AT) (Insolvency) No.1507 of 2019 before the NCLAT. However, the NCLAT vide the impugned order dated 22nd November, 2021, has rejected the said application for modification and passed the order as aforesaid. Being aggrieved, the appellant has approached this Court by way of present appeal.

# 10. We have heard Shri Shyam Divan, learned Senior Counsel appearing on behalf of the appellant, Shri D.N. Goburdhun, learned Senior Counsel appearing on behalf of the applicants-home-­buyers and Shri Abhigya Kushwah, learned counsel appearing on behalf of the respondent No.1/ IRP/applicant.

# 11. Shri Shyam Divan, learned Senior Counsel, would submit that in pursuance to the liberty granted by this Court, the appellant had moved the NCLAT placing on record the settlement with all the stakeholders. He submitted that not only that but in pursuance to an order passed by the NCLAT dated 29th September, 2021, a special meeting of the stakeholders was convened on 23rd October, 2021, wherein the IRP, the representatives of the Corporate Debtor, the financial creditors, ten representatives of home­buyers and the lawyers representing home­buyers were present. He submitted that the perusal of the minutes of the meeting dated 23rd October, 2021 would show that there was a settlement between the appellant and the home­buyers almost on all counts. It is submitted that, however, the NCLAT, without taking into consideration the minutes of the said meeting, has erroneously passed the impugned order, thereby holding that there was no settlement with all the home­buyers and that there was trust deficit amongst the home­buyers. He submitted that not only this but Shri Kashi Nath Shukla, the Promoter of the Corporate Debtor, has filed an undertaking on an affidavit, thereby undertaking to complete the project within the stipulated period. He therefore submits that it is in the interest of the home­buyers that the reverse CIRP should be permitted to be continued in accordance with the decision taken in the meeting dated 23rd October, 2021.

# 12. Shri D.N. Goburdhun, learned Senior Counsel strongly opposes the prayer made on behalf of the appellant. He submits that the appellant is not at all interested in completing the project. He submits that the proposed settlement terms/plan is not a bona fide one but only to delay the completion of the project. He submits that the initiation of CIRP proceedings would ensure the completion of the project and would be in the interest of the home­buyers. He therefore prays for dismissal of the present appeal.

# 13. Shri Abhigya Kushwah, learned counsel, would submit that most of the home­buyers are interested in getting the possession of the flats. He therefore submits that this Court may pass appropriate orders taking into consideration the interests of the purchasers of the flats.

# 14. A perusal of the record would reveal that after the order was passed by this Court on 5th March, 2020, the appellant submitted a Revised Proposed Settlement Plan on 15th March, 2021. The IRP also submitted its Revised Status Report on 25th March, 2021 before the NCLAT. An email dated 9th July, 2021, addressed by Senior Investment Associate, SBI Cap Ventures Ltd. ­SWAMIH Investment Fund to Shri Kashi Nath Shukla, the Promoter of the Corporate Debtor, was also placed on record before the NCLAT. When the matter was listed before the NCLAT on 29th September, 2021, the NCLAT directed the IRP/RP, who was present before the NCLAT, to convene a meeting of CoC within four weeks to consider the modified Resolution Plan. The NCLAT further directed that home­buyers may nominate not more than 10 persons, who will participate in the meeting and represent them. The NCLAT further directed that the promoters and the authorised persons of Edelweiss Asset Reconstruction Company Ltd. (Financier) would also participate in the meeting so that they can explain the elements of the modified Resolution Plan to the home-buyers. The IRP/RP was directed to place on record the minutes of the meeting after the meeting was convened. The matter was thereafter directed to be listed for hearing on 15th November, 2021.

# 15. In accordance with the directions issued by the NCLAT, a meeting was convened on 23rd October, 2021. A perusal of the minutes of the meeting dated 23rd October, 2021 would reveal that the ‘Modified Resolution Plan’ submitted by the Promoter was presented on a Digital Screen. During the presentation, some home­buyers requested for further modification of some contentious points of the ‘Modified Resolution Plan’. The perusal of the minutes of the said meeting would further reveal that most of the concerns as expressed on behalf of the home-buyers were taken care of by the statement made on behalf of the Promoters.

# 16. It is further to be noted that the Status Report came to be filed by the IRP before the NCLAT on 3rd November, 2021. The said Status Report of the IRP would reveal that the Promoter, Shri Kashi Nath Shukla had informed that he would file an addendum to his ‘Modified Resolution Plan’ to include the points of home­buyers and to amend the plan as per discussions in the Meeting.

# 17. However, by the impugned order dated 22nd November, 2021, the NCLAT has rejected the application for modification and directed the CIRP to be continued.

# 18. It could thus be seen that though a meeting of various stakeholders was conducted on 23rd October, 2021 in pursuance to the directions issued by the NCLAT dated 29th September, 2021 and in which meeting most of the issues stood resolved, the NCLAT has failed to take into consideration the minutes of the said meeting dated 23rd October, 2021. Not only that, but the NCLAT has also not taken into consideration the Revised Status Report dated 3rd November, 2021 submitted by the IRP.

# 19. An additional affidavit dated 27th December, 2021, has now been filed by the Promoter, Shri Kashi Nath Shukla before this Court. It will be relevant to reproduce the same, which is as under:

“IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

CIVIL APPEAL NO. 7534 OF 2021

IN THE MATTER OF:

ANAND MURTI … APPELLANT

VERSUS

Soni Infratech Pvt. Ltd & Anr. … RESPONDENTS

AFFIDAVIT

“I K.N. Shukla son of Sh Kailash Nath Shukla resident of C­35 Sector 30, Noida, UP 201301 around 68 Years age and the major share holder of M/S K N Consultant pvt Ltd. which is promoter of M/S Soni Infratech Pvt Ltd, (Corporate Debtor) Having its Registered office at 517 A, Narain Manzil, 23, Barakhmbha Road Connaught place, New Delhi­110001, presently do hereby solemnly affirm and state as under:

1. That I am conversant with the facts of the case as such I am competent to affirm this affidavit.

2. That I am the original land owner and existing promoter of the Corporate Debtor and I say that I have purchased the land in 2007 for the development of the project of the corporate debtor i.e. M/S Soni Infratech Pvt Ltd.

3. That I have given the land for the development to “SPIRE Group” to develop the project vide development Agreement. And accordingly the Development and management of the project transferred to erstwhile promoters i.e. Mr. Sunil Gandhi and Mr. Ashish Bhalla of “Spire Group”.

4. That SPIRE Group has launched the project and collected the booking from the home buyers for the said project and appointed construction company ERA Group to complete the project.

5. That After construction of 30-­40% work, ERA Group has stopped the work due to inter­se dispute in the ERA group which lead to multiple litigation between the erstwhile promoters.

6. That I have discussed about the delay of the project and after a long discussion and series of meeting, I managed to take back the management of the project in 2017.

7. That I have terminated the Civil contract of ERA and appointed the new contractor i.e. M/s Indsao Infratech and within a period of 18 months we have managed to complete approx 70% of total construction of the project by mid of 2018. The Enclosed Construction audit report by “Qonquest” confirms the stage as approx 70% completed.

8. That I have approached Financial Creditor M/s Edelweiss to grant further loan to complete the project. But Due to stay granted by NCLT in CP No. N0.175/241/242/(ND)/ 2018 arises in the inter­se disputes between Mr. Sunil Gandhi and Mr. Ashish Bhalla, 50% of shares of the corporate Debtor could not be pledged in favour of M/s Edelweiss. Thus, the Edelweiss has not disbursed the funds for the construction.

9. That in June 2019, I managed to get 100% share back after the Hon’ble NCLT decided the matter in CP No 175/241/242/(ND)/2018.

10. That before I could arrange more funds, an application in case title Balram Singh Vs. Soni Infratech Private Limited vide its order dated 22.11.2019 for the CIRP got admitted.

11. That suspended Director has preferred an Appeal before Hon’ble NCLAT and Hon’ble NCLAT vide it order dated 19.12.2019 were pleased to grant stay on CIRP.

12. That as per the direction of the Hon’ble NCLAT, i have filed the settlement terms/Resolution Plan with all details pertaining how this project will be managed to be completed with funds planning and repayment to all Creditors.

13. That I say that I will complete the stage wise construction within 6 months to 15 months (+/ 3 Months) in phased manner from the date of Order.

Particulars Tower Time in Months (+/­ 3 Months)

Stage­-I T8­-T12 Within 6­-9 months

Stage­-II T1­-T4 Within 12 months

Stage­-III T5­-T7 Within 15 months

14. That I say, I had committed in open court and accordingly arranged Rs 10 Crore to start the project immediately without any delay and I will ensure this will be started within 15­30 days.

15. That I have already agreed in my Resolution plan that the Cost of the Flat will not be escalated and agreed to honor the BBA signed by the previous management.

16. That as per the data before the LD IRP only 9 home buyers out of 452 Home Buyers wanted the refund and in my Resolution Plan I have agreed to refund the amount after completion of the project of Phase­1.

17. That I have stated all relevant data and computation in details in my Resolution Plan that how the funds will be utilized and how the construction work can be completed in time.

18. That I have stated in my last modified resolution plan that SBI Cap Vetures Ltd has already shown interest for further Loan of 100 Crore to me.

19. That as per the direction of Hon’ble NCLAT I have attended the meeting with the Representative of the Home Buyers and I have already accepted and agreed to Incorporate the suggestions and objections of the Home Buyers to the Resolution Plan and the same has been recorded by the LD IRP in the Minutes of the Meeting dated 23.10.2021.

20. That I have also given my consent to make a team of 5 person, 2 from buyer side and 2 from management side and will be monitored by Ld IRP

21. That this affidavit to the additional documents in the present Civil Appeal have been read by me and are found true and correct to my knowledge and belief.

22. That the Annexures are true copies of their respective originals.

23. That the facts stated in the above affidavit are true and correct to my personal knowledge and belief.

24. That No part of the same is false and nothing material have been concealed there from.

DEPONENT

VERIFICATION

I, the above named deponent do hereby verify that the facts stated in the above affidavit are true to my knowledge and belief which I believe to be true. No part of the same is false and nothing material has been concealed there from.

Verified at New Delhi, on this 27th day of December, 2021.

DEPONENT”

# 20. The Promoter, Shri Kashi Nath Shukla has also filed an undertaking, thereby undertaking to return the money with interest at the rate of 6% per annum of seven applicants in I.A. No.11358 of 2022 (for impleadment) in the present appeal, who were objecting to the Settlement Plan submitted by the appellant. The same is taken on record and marked ‘X’ for identification.

# 21. Taking into consideration the facts and circumstances of the present case, we find that it will be in the interest of the home­buyers if the appellant/promoter is permitted to complete the housing project. The salient features of the undertaking given on affidavit are as under:

• (a) That the project will be completed stage­wise within a period of 6 months to 15 months (+/­ 3 months) in a phased manner;

• (b) That the promoter has arranged an amount of Rs. 10 crores to start the project immediately without any delay and that he will ensure that the project would be started within 15­30 days;

• (c) That the cost of the flat will not be escalated and that the promoter is agreeable to honour the BBA signed by the previous management;

• (d) That SBI Cap Ventures Ltd. has already shown interest for further loan of Rs.100 crore;

• (e) That the promoter has given his consent to make a team of 5 persons, 2 from home­buyer’s side and 2 from the management side and that the entire process will be monitored by the IRP.

# 22. Taking into consideration the salient features of the undertaking given on affidavit by the Promoter, Shri Kashi Nath Shukla and the fact that there are only seven out of the 452 home­buyers, who opposed the Settlement Plan, we find that it will rather be in the interest of the home­buyers that the appellant/promoter is permitted to complete the project as undertaken by him. It is pertinent to note that he has agreed that the cost of the flat will not be escalated. He has also given the time line within which the project would be completed. Not only this, but he has also undertaken to refund the amount paid by the seven objectors, if they so desire. He has further agreed that there shall be a team of 5 persons, 2 from the home­buyer’s side and 2 from the management side and that the entire process shall be monitored by the IRP.

# 23. We find that there is every possibility that if the CIRP is permitted, the cost that the home­buyers will have to pay, would be much higher, inasmuch as the offer made by the resolution applicants could be after taking into consideration the price of escalation, etc. As against this, the Promoter has filed a specific undertaking specifying therein that the cost of the flat would not be escalated and that he would honour the BBA signed by the previous management.

3 24. In that view of the matter, we are inclined to allow the present appeal. Accordingly, we pass the following order:

A. The appeal is allowed. The impugned order dated 22nd November, 2021 passed by the National Company Law Appellate Tribunal, Principal Bench, New Delhi in I.A. No.1115 of 2020 in Company Appeal (AT) (Insolvency) No. 1507 of 2019 is quashed and set aside;

B. The affidavit dated 27th December, 2021 filed by Shri Kashi Nath Shukla, the promoter of the respondent No.1 – Corporate Debtor is taken on record and treated to be an undertaking given to this Court;

C. The appellant/promoter is permitted to complete the project as per the deliberations that took place in the Minutes of the Meeting dated 23rd October, 2021 and in accordance with the affidavit-­cum-­undertaking dated 27th December, 2021 of the Promoter, Shri Kashi Nath Shukla;

D. The modification application being I.A. No.1115 of 2020 in Company Appeal (AT) (Insolvency) No. 1507 of 2019 before the NCLAT accordingly stands allowed.

E. From the date of this order, the IRP shall submit quarterly reports to the National Company Law Appellate Tribunal, Principal Bench, New Delhi with regard to the progress of the housing project;

F. The matter be listed before the National Company Law Appellate Tribunal, Principal Bench, New Delhi for such first Status Report on 22nd August, 2022.

# 25. Application for impleadment is allowed. Application for clarification/directions filed on behalf of the IRP does not survive and is accordingly dismissed. Application for vacation of stay/modification of order dated 4th January, 2022 is rejected. Pending application(s), if any, shall stand disposed of. There shall be no order as to costs.

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S. Elangovan the Promoter and Erstwhile Managing Director of Kaveri Gas Power Pvt. Ltd. Vs. ASREC (India) Ltd. - 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.

NCLAT (25.04.2022) in S. Elangovan the Promoter and Erstwhile Managing Director of Kaveri Gas Power Pvt. Ltd. Vs. ASREC (India) Ltd. [Company Appeal (AT) (CH) (INS) No. 102 of 2022 and IA No. 237 of 2022] held that; 

• In a case where the guarantee is payable on demand, as held in Bradford [(1918) 2 KB 833 : 88 LJKB 85 : 119 LT 727 (CA)] and Hartland [(1863) 1 H & C 667 : 7 LT 792], the limitation begins to run when the demand is made and the guarantor commits breach by not complying with the demand.

• We have to, however, enter a caveat here. When the demand is made by the creditor on the guarantor, under a guarantee which requires a demand, as a condition precedent for the liability of the guarantor, such demand should be for payment of a sum which is legally due and recoverable from the principal debtor.

• 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.

• A guarantor’s liability depends upon the terms of his contract. A `continuing guarantee’ is different from an ordinary guarantee. There is also a difference between a guarantee which stipulates that the guarantor is liable to pay only on a demand by the creditor, and a guarantee which does not contain such a condition. 

• A claim may be even time-barred against the principal debtor, but still enforceable against the guarantor. 

• That the extent of liability under a guarantee as also the question as to when the liability of a guarantor will arise, would depend purely on the terms of the contract.

• That the `liability’ of the `Guarantor’ is coextensive with that of `Principal Debtor’, unless it is otherwise provided by the `Contract’. It is the prerogative of the `Creditor’ alone to move against the `Principal Debtor’ or the `Surety’. `Clauses’ in the `Letter of Guarantee’ are binding on the `Guarantor’

Excerpts of the order;

IA No. 237 of 2022 in Comp. APP (AT) (CH) (INS) No. 102 of 2022: According to the Learned Counsel for the Appellant, the Applicant / Appellant has filed the instant appeal before this Tribunal within limitation. In fact, the impugned order in CP(IB)/82/CHE/2021 was passed by the `Adjudicating Authority’, `National Company Law Tribunal’, Division Bench – I, Chennai, on 04.02.2022 and the period of 30 days, as enshrined under Section 61(2) of the I & B Code, 2016 to prefer an `Appeal’ came to an end on 06.03.2022. However, the Hon’ble Supreme Court on 10.01.2022 in M.A.No.21 of 2022 in M.A.No.665 of 2021 in Suo Motu Writ Petition (C) No.3 of 2022 had excluded the period between 15.03.2020 and 28.02.2022 for the purpose of calculating limitation. Hence, the period from 04.02.2022 till 28.02.2022 would stand excluded and the 1st day would run from 01.03.2022.

# 2. Viewed in the above backdrop, this `Tribunal’ holds that the instant Comp. App (AT) (CH) (INS) No.102 of 2022 filed by the Applicant/Appellant is filed by the Applicant/Appellant in time and accordingly, the IA No. 237 of 2022 stands disposed of. No costs.

Company Appeal (AT) (CH) (INS) No. 102 of 2022:

PREFACE:

The ‘Appellant’/‘Promoter’ and Former Managing Director of the Corporate Debtor (Kaveri Gas Power Pvt. Ltd.) has filed the Instant Company Appeal (AT) (CH) (INS) No.102 of 2022 being dissatisfied with the Order dated 04.02.2022 in CP(IB) No. 82/CHE/2021 passed by the ‘Adjudicating Authority’ (`National Company Law Tribunal’, Division Bench-I, Chennai).

# 2. Earlier, the ‘Adjudicating Authority’ (`National Company Law Tribunal’, Division Bench-1, Chennai) while passing the ‘Impugned Order’ dated 04.02.2022 in CP (IB) No.82/CHE/2021 (filed under Section 7 read with Rule 4 of the Insolvency and Bankruptcy Code, 2016 at paragraph 8 to 13 had observed the following: . . . . . . . and admitted the `Application’ by appointing Mr. L. Bhadri as an `Interim Resolution Professional’ and declared ‘Moratorium’, etc.

EVALUATION:

# 30. Apart from the above, it is the stand of `Corporate Guarantor’ that the `Application’ filed by the 1st Respondent/Applicant is to be rejected at the threshold for not having demonstrated any `default’ on the part of the `Corporate Guarantor’. It is the stand of the `Corporate Guarantor’ that the Guarantee Agreement’ executed by it made it liable for the `Debt’ of the `Principal Borrower’ only to an extent of Rs.50.48 Crores. The presumption of `Default’ of `Financial Debt’ as provided for under Section 7 of the I & B Code, 2016 is only available to the `Financial Creditor’ if the requirements of Section 7 and the Regulation thereunder are satisfied.

# 31. Before the `Adjudicating Authority’, the `Appellant’/`Corporate Debtor’/`Corporate Guarantor’ in its written submissions took a stand that an uninvoked `Corporate Guarantee Agreement’ cannot be the basis for an application under Section 7 of the I & B Code, 2016. The said `Corporate Guarantee Agreement’ is an `Autonomous Contract’ and `irrespective of the proof’ of the `Principal Debt’ in the `CIRP’ of the `Principal Debtor’ as against it, the `Debt’ to the extent guaranteed by the `Corporate Debtor’ has to be proved separately by the `Applicant Creditor’ in the `Application’ filed under Section 7 of the Code.

# 32. It is the version of the `Appellant’ that the purported document of `Default’ filed along with Form-I before the `Adjudicating Authority’ discloses a Debt of Rs.150.39 Crores which is incongruous to the claim of Rs.52.25 Crores mentioned in Form-I and a guaranteed sum of Rs.50.48 Crores.

# 33. A perusal of the `Guarantee Agreement’ dated 19.07.2018, executed by Kaveri Gas Power Limited (Guarantor) to and in favour of SBICAP TRUSTEE Company Limited shows that the Cauvery Power Generation Chennai Private Limited was sanctioned by the State Bank of India (Lender) `Working Capital Assistance’ not exceeding Rs.50.48 Crores on the terms and conditions set out in the `Working Capital Consortium Agreement’ dated 31.10.2013 and First Amendment to `Working Capital Consortium Agreement’ dated 19.07.2018.

# 34. It must be borne in mind that Clause 6 to 8 of the `Guarantee Agreement’ dated 19.07.2018, executed by the Kaveri Gas Power Limited (Guarantor) run as under :

• “6. The Lender/Security Trustee shall have full liberty, without notice to the Guarantor and without in any way affecting this guarantee, to exercise at any time and in any manner any power or powers reserved to the Lender/Security Trustee under the Working Capital Agreement to enforce or forbear to enforce payment of the Loans or any part thereof or interest or other monies due to the Lender/Security Trustee from the Borrower or any of the remedies or securities available to the Lender/Security Trustee, to enter into any composition or compound with or to grant time or any other indulgence or loans to the Borrower AND the Guarantor shall not be released by the exercise by the Lender/Security Trustee of its liberty in regard to the matters referred to above or by any act or omission on the part of the Lender/Security Trustee or by any other matter or thing whatsoever which under the law relating to sureties would but for this provision have the effect of so releasing the Guarantor AND the Guarantor hereby waives in favour of the Lender/Security Trustee so far as may be necessary to give effect to any of the provisions of this Guarantee, all the suretyship and other rights which the Guarantor might otherwise be entitled to enforce.

• 7. This Guarantee shall be enforceable against the Guarantor, notwithstanding that any security or securities comprised in any instrument(s) executed or to be executed by the Borrower in favour of the Lender/Security Trustee shall, at the time when the proceedings are taken against the Guarantor on this Guarantee, be outstanding or unrealized or lost.

• 8. The Guarantor hereby agrees and gives consent to the sale, release, etc., of any of the assets by the Borrower from time to time as may be approved by the Lender/Security Trustee or to release or leasing out by the Lender/Security Trustee of any or whole of the assets charged to the Lender/Security Trustee on such terms and conditions as the Lender may deem fit and this may be treated as a standing and continuing consent for each and every individual act of transfer, or release of any of such assets of the Borrower. The Guarantor hereby declares and agrees that no separate consent for each such transfer or release of any of such assets would be necessary in future.”.

# 35. In fact, `the Guarantee Agreement’ dated 19.07.2018, Clause 11 enjoins that `the Guarantor’ affirms, confirms and declares that any balance confirmation and / or acknowledgement of debt and/or admission of liability given or promised or part payment made by the `Borrower’ or the `Authorized Agent’ of the Borrower to the `Lender/Security Trustee’ shall be deemed to have been made and/or given by or on behalf of the ‘Guarantor’ itself and shall be binding upon each of them. That apart, Clause 12 of the `Guarantee Agreement’ dated 19.07.2018 proceeds to the effect that `to give effect’ to this `Guarantee’ the `Lender/Security Trustee’ may act as if the `Guarantor’ was the `Principal Debtor’ to the `Lender/Security Trustee’.

# 36. As a matter of fact, the aforesaid `Guarantee Agreement’ dated 19.07.2018 `Clause 13’ points out that the ‘Guarantor’ hereby declares and agrees that they have not perceived and shall not without the prior consent in writing of the `Lender/Security Trustee’ receive any Security or Commission from the Borrower for giving this `Guarantee’ so long as monies remain `due and payable’ by the `Borrower’ to the `Lender/Security Trustee’ under the `Working Capital Agreement’.

# 37. In reality, Clause 20 of the `Guarantee Agreement’ dated 19.07.2018 categorically provides that the liability of the `Guarantor’ shall not exceed the sum of Rs.50.48 Crores plus all interest, additional and penal interest, further interest, premium on pre-payment, costs, charges and other monies payable by the Borrower to the `Lender/Security Trustee’ under the `Working Capital Agreement’. Moreover, the `Clause 20 of the Guarantee Agreement’, says that `A Certificate’ or `Claim’ in writing by the `Lender/Security Trustee’ stating the amount at any particular time due and payable under this `Guarantee’ shall be `conclusive evidence’ as against the `Guarantor’, their `representatives and estate’; which shall be paid without demur’.

# 38. To put it precisely, `Clause 23 of the `Guarantee Agreement’ dated 19.07.2018’ mentions that the `Guarantor’ agrees and declares that the rights and power conferred on the `Lender/Security Trustee’ by these presents may be exercised by the `Security Trustee’ acting for the benefit and on behalf of the `Lender’.

# 39. To be noted, that the `Assignment Agreement’ dated 30.12.2020 was entered into between State Bank of India (`Assignor’) and the 1st Respondent ASREC (INDIA) Limited (`Assignee’) relating to the Assignment of the Loans, disbursed under the financing documents together with all its `rights’, `title’ and `interest’ in the financial documents and any underlying `Security Interests’, `pledges’ and / or `Guarantees’ in respect of such loans.

# 40. It comes to be known that the `1st Respondent/ASREC (INDIA) Limited’ had issued a `Invocation of Corporate Guarantee’ notice dated 12.03.2021 addressed to M/s. Kaveri Gas Power Private Limited whereby and whereunder it was among other things mentioned that the State Bank of India had assigned the Debt of CPGCPL together with its underlying `Security/Guarantees’ to ASREC (INDIA) Limited (“ASREC”) vide Agreement dated 30.12.2020 and that the 1st Respondent stepped into the shoes of State Bank of India and since then the `1st Respondent/ASREC’ made efforts to recover the Debts due from CPGCPL and its `Guarantors’. In fact, the communications, the oral conversations and meetings had not fructified in recovering the dues or making the liabilities current.

# 41. Continuing further, in the notice dated 12.03.2021 (`Invocation of Corporate Guarantee’ – M/s. Kaveri Gas Power Limited), M/s. KGPL was called upon to forthwith discharge the liability of Rs.1,50,39,59,607.73 within 14 days, failing which, it was informed that appropriate legal action including approaching the Court, NCLT and Tribunals would be undertaken for enforcing the `Corporate Guarantee’ and realizing the dues with costs, etc.

Glimpse of Decisions:

42. At this juncture, this `Tribunal’ aptly cites the decision of the Hon’ble Supreme Court in Syndicate Bank V. Chan Naveerappa Beleri & Ors. reported in All India Reporter 2006 Supreme Court at page 1874 wherein at paragraph 11-14 it is observed as follows:

• 11. “But in the case on hand, the guarantee deeds specifically state that the guarantors agree to pay and satisfy the Bank on demand and interest will be payable by the guarantors only from the date of demand. In a case where the guarantee is payable on demand, as held in Bradford [(1918) 2 KB 833 : 88 LJKB 85 : 119 LT 727 (CA)] and Hartland [(1863) 1 H & C 667 : 7 LT 792], the limitation begins to run when the demand is made and the guarantor commits breach by not complying with the demand.

• 12. We will examine the meaning of the words `on demand’. As notice above, the High Court was of the view that the words ‘on demand’ in law have a special meaning and when an agreement states that an amount is payable on demand, it implies that it is always payable, that is payable forthwith and a demand is not a condition precedent for the amount to become payable. The meaning attached to the expression `on demand’ as `always payable’ or `payable forthwith without demand’ is not one of universal application. The said meaning applies only in certain circumstances. The said meaning is normally applied to promissory notes or bills of exchange payable on demand. We may refer to Articles 21 and 22 in this behalf. Article 21 provides that for money lent under an agreement that it shall be payable on demand, the period of limitation (3 years) begins to run when the loan is made. On the other hand, the very same words` payable on demand’ have a different meaning in Article 22 which provides that for money deposited under an agreement that it shall be payable on demand, the period of limitation (3 years) will begin to run when the demand is made. Thus, the words `payable on demand’ have been given different meanings when applied with reference to `money lent’ and `money deposited’. In the context of Article 21, the meaning and effect of those words is `always payable’ or payable from the moment when the loan is made, whereas in the context of Article 22, the meaning is `payable when actually a demand for payment is made’.

• 13. What then is the meaning of the said words used in the guarantee bonds in question? The guarantee bond states that the guarantors agree to pay and satisfy the Bank `on demand’. It specifically provides that the liability to pay interest would arise upon the guarantor only from the date of demand by the Bank for payment. It also provides that the guarantee shall be a continuing guarantee for payment of the ultimate balance to become due to the Bank by the borrower. The terms of guarantee, thus, make it clear that the liability to pay would arise on the guarantors only when a demand is made. Article 55 provides that the time will begin to run when the contract is `broken’. Even if Article 113 is to be applied, the time begins to run only when the right to sue accrues. In this case, the contract was broken and the right to sue accrued only when a demand for payment was made by the Bank and it was refused by the guarantors. When a demand is made requiring payment within a stipulated period, say 15 days, the breach occurs or right to sue accrues, if payment is not made or is refused within 15 days. If while making the demand for payment, no period is stipulated within which the payment should be made, the breach occurs or right to sue accrues, when the demand is served on the guarantor.

• 14. We have to, however, enter a caveat here. When the demand is made by the creditor on the guarantor, under a guarantee which requires a demand, as a condition precedent for the liability of the guarantor, such demand should be for payment of a sum which is legally due and recoverable from the principal debtor. 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. To clarify the above, the following illustration may be useful:

• Let us say that a creditor makes some advances to a borrower between 10-4-1991 and 1-6-1991 and the repayment thereof is guaranteed by the guarantor undertaking to pay on demand by the creditor, under a continuing guarantee dated 1-4-1991. Let us further say a demand is made by the creditor against the guarantor for payment on 1-3-1993. Though the limitation against the principal debtor may expire on 1-6-1994, as the demand was made on 1-3-1993 when the claim was `live’ against the principal debtor, the limitation as against the guarantor would be 3 years from 1-3-1993. On the other hand, if the creditor does not make a demand at all against the guarantor till 1-6-1994 when the claims against the principal debtor get time-barred, any demand against the guarantor made thereafter say on 15-9-1994 would not be valid or enforceable.”

# 43. It will be useful for this `Tribunal’ to refer to the decision of Hon’ble High Court of Madras in Gopilal Q Nichani V Track Industries and Components Ltd and Others reported in AIR 1978 Mad 134, 137 and 138 wherein at paragraph 12 and 13 it is observed as under:

• 12.`We shall now take the question of interpretation of Section 128 of the Indian Contract Act. No other section of the Contract Act_or and general principle has been relied on before us on behalf of the guarantor. We shall extract Section 128 of the Indian Contract Act:- –

• “The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract.”

• 13. The section talks of only one thing and that is about the liability of the guarantor as being coextensive as that of the principal debtor. The word coextensive is an objective for the word `extent’ and it can relate only to the quantum of the principal debt. This question has been dealt with and discussed at length in a Full Bench decision of this Court in Subramania V Narayanaswami. That was a case arising out of a reference made by Subba Rao J. (as he then was) on the question whether a non-agriculturist surety would be liable for the entire debt even though the principal debt was scaled down under the provisions of the Tamil Nadu Agriculturists Relief Act. In this decision, reference was made to the well know principle that a guarantee is not put to an end to by reason of the debt becoming unenforceable against the principal by reason of matters happening subsequently, and that a surety is liable though the claim against the principal is barred by the Statute of Limitation or by reason of the bankruptcy of the Principal. No doubt, there is the provision in Section 45 (4) of the Presidency Towns Insolvency Act expressly enacting that the fact the principal debtor has become an insolvent did not affect the liability of the surety. But this provision in the Statute does not detract from the principle that we have stated above. The liability of the guarantor arising as it does from an independent contract, even in cases where the guarantors is a privy to the contract between the principal debtor and the creditor, stands on a different footing, and unless we are able to say that by necessary implication that liability is also affected by some conduct of the principal debtor or any other agreement between the principal debtor and the creditor, attracting the provisions of Section 133, 134 or 135 of the Contract Act, the principle laid down in Subramania V Narayanaswami will not extend to a case where a temporarily the liability of the principal debtor has been suspended and as therefore, become unenforceable. A reference to Section 7 of the Act indicates that it is only a suspension and a liability is not affected at all. Section 7 of the Act specifically provides in computing the period of limitation for the enforcement of any right, privilege, obligation or liability referred to in Clause (b) of Section 4 the period during which it or the remedy for the enforcement thereof was suspended, shall be excluded. It is therefore clear that there is no extinguishment of the principal debt, and the contract between the guarantor and the creditor stands absolutely unaffected by the passing of the notification under Section 3, declaring a particular undertaking as a relief undertaking, with great respect we are unable to agree with the reasoning of Sethuraman J. in Appln No.1849 in C.S. 155 of 1973. The suit has been instituted after the notification, Section 6 of the Act provides for a stay of the pending proceedings against the relief undertaking. But the suit as against the relief undertaking having been instituted after the notification is not maintainable. The dismissal of the suit as against the relief undertaking must therefore stand. But the dismissal of the suit as against the guarantors cannot be sustained. The suit as against them must proceed. In the other Judgment which is under appeal in O.S.A.68 of 1976, Suryamurthy J. has held that the action taken to adjudge the surety as an insolvent is not an action for recovery of debt, and in this appeal a determination of this question, is unnecessary. If a suit against the guarantor would lie, we have not doubt that proceedings for adjudging the guarantor as insolvent would equally lie.”

# 44. This `Tribunal’ seeks in aid of the decision of the Hon’ble Supreme Court in the matter of State Bank of India V Indexport Registered and Ors 1992 3 SCC page 159 at Spl. Page 166 wherein at paragraph 16 to 18, it is observed as follows:

• 16. “In Halsbury’s Laws of England Forth Edition paragraph 159 at page 87 it has been observed that “it is not necessary for the creditor, before proceeding against the surety, to request the principal debtor to pay, or to sue him, although solvent, unless this is expressly stipulated for.”

• 17. In Hukamchand Insurance Co Ltd Vs. Bank of Baroda, AIR (1977) Kant 204, a Division Bench of the High Court of Karnataka had an occasion to consider the question of liability of the surety vis-à-vis the principal debtor. Venkatachaliah, J. (as His Lordship then was) observed:-

• “The question as to the liability of the surety, its extent and the manner of its enforcement have to be decided on first principles as to the nature and incidents of suretyship. The liability of a principal debtor and the liability of a surety which is coextensive with that of the former are really separate liabilities, although arising out of the same transaction. Notwithstanding the fact that they may stem from the same transaction, the two liabilities are distinct. The liability of the surety does not also, in all cases, arise simultaneously. ”

• 18. It will be noticed that the guarantor alone could have been sued, without even suing the principal debtor, so long as the creditor satisfies the court that the principal debtor is in default.”

# 45. In the decision of the Hon’ble Supreme Court in Syndicate Bank V Channaveerappa Beleri & Ors reported in (2006) 11 SCC 506 at Spl Page 517 wherein at paragraph 9 it is observed as under:-

• “9. A guarantor’s liability depends upon the terms of his contract. A `continuing guarantee’ is different from an ordinary guarantee. There is also a difference between a guarantee which stipulates that the guarantor is liable to pay only on a demand by the creditor, and a guarantee which does not contain such a condition. Further, depending on the terms of guarantee, the liability of a guarantor may be limited to a particular sum, instead of the liability being to the same extent as that of the principal debtor. The liability to pay may arise, on the principal debtor and guarantor, at the same time or at different points of time. A claim may be even time-barred against the principal debtor, but still enforceable against the guarantor. The parties may agree that the liability of a guarantor shall arise at a later point of time than that of the principal debtor. We have referred to these aspects only to underline the fact that the extent of liability under a guarantee as also the question as to when the liability of a guarantor will arise, would depend purely on the terms of the contract.”

# 46. In the decision in Indian Bank, Madras V The State of Tamil Nadu, read by Secretary, Department of Handloom and Textiles, reported in 2002 (2) MLJ at Page 649, it is observed that the liability of `Guarantor’ is coextensive, the word `extensive’ was an objective for the word `extent’ and it related to the `Quantum of Principal Debt’.

# 47. In the decision of Hon’ble Supreme Court in Central Bank of India and Others V C.L. Vimala and Others, etc., decided on 28.04.2015, reported in AIR (SCW) 3240, wherein it is observed that the `liability’ of the `Guarantor’ is coextensive with that of `Principal Debtor’, unless it is otherwise provided by the `Contract’. It is the prerogative of the `Creditor’ alone to move against the `Principal Debtor’ or the `Surety’. `Clauses’ in the `Letter of Guarantee’ are binding on the `Guarantor’. Ignorance is not a valid ground.

# 48. It is relevantly pointed out that the term `Guarantee’ is a continuous one and therefore, the `right to sue accrues’ when the `Guarantee Agreement’ was invoked and the date when the `Corporate Debtor’ had failed to discharge its obligation, in terms of `Guarantee’.

# 49. There is no two opinion of a primordial fact that the liability of the `Guarantor’ being coextensive with the `Principal Borrower’, in terms of the ingredients of Section 128 of the Indian Contract Act, 1872. The liability of a `Guarantor’ will be cemented up on the document like `Guarantee Deed’, `Mortgage’ by `Deposit of Title Deeds’, etc.

# 50. In the instant case, one cannot remain oblivious of the fact that the outstanding debt Viz., the `defaulted sum’ of the `Corporate Debtor’ stood at Rs.1,50,39,59,607.73 paise, which was payable on 27.09.2018, on the date when the `Account’ as `Non Performing Asset’.

# 51. To put it succinctly, the `Appellant’ in its `One Time Settlement’ had recognised itself as the `Debtor’ in respect of the outstanding sum to be paid to the `1st Respondent/Applicant/Financial Creditor’, in the latter’s position as `Assignor’.

# 52. The other vital fact to be kept in mind is that the `Guarantee’ has a `Live Force’ and that the `Appellant’s obligation’ is not wiped out in discharging its liability. It is to be remembered that under the I & B Code, 2016, the `Quantum of Liability’ is not a relevant factor to be taken into account and has no nexus in respect of the `Initiation’ of `Corporate Insolvency Resolution Process’, in as much as the `Default’ of a `Debt’ is equivalent to Rs.1 Crore and above.

# 53. An `Adjudicating Authority’ is not to determine a `money claim’ or `suit’. The I & B Code, 2016, requires an `Adjudicating Authority’ only, to find out and record satisfaction in a summary adjudication, in regard to the occurrence of `Default’, as per ingredients of Section 4, before admitting a `Petition’.

# 54. In the teeth of I & B Code, 2016, the aspect of extent of liability can be dealt with and arrived at a final solution by a `Resolution Professional’ based on the claims projected by the parties, of course after the initiation of `CIRP’. Furthermore, in any event, the controversy/dispute relating to the `extent of liability’ is not a determining factor at the stage of initiation of “CIRP’.

# 55. Be that as it may, in the light of foregoing detailed `Qualitative’ and `Quantitative’ discussions, this `Tribunal’ taking into account of the fact that in the instant case that the `Debt’ was assigned by the `Applicant/Financial Creditor/State Bank of India’ to the `1st Respondent/ASREC (INDIA) Limited’ and bearing in mind another fact that the `Corporate Debtor’ had not replied to the `Letter’ / `Notice’ of the`1 st Respondent/Financial Creditor’ in pressing into service the `Corporate Guarantee Agreement’ dated 19.07.2018 and considering the cumulative attendant facts and circumstances of the instant case, which float on the surface, comes to an inescapable, inevitable and irresistible conclusion that the impugned order passed by the `Adjudicating Authority’ (National Company Law Tribunal, Division Bench – I, Chennai) in CP(IB)/82/CHE/2021 in arriving at the conclusions that the `Financial Debt’ was proved by the `1st Respondent/Applicant/Financial Creditor’ and that the `Default’ was committed by the `Corporate Debtor’ and ultimately admitting the `Application’ (filed under Section 7 of the Code by the 1st Respondent/Applicant/Financial Creditor) are free from any `legal infirmities’. Consequently, the `Appeal’ fails.

Disposition:

In fine, the instant Company Appeal (AT) (INS) 102 of 2022 is dismissed.

No costs.

IA No.236 of 2022 (Stay Application) is Closed.

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